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Sentiment in foreign exchange markets: Hidden fundamentals by the back door or just noise?

Rafael R. Rebitzky
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Rafael R. Rebitzky: University of Hannover

No 118, Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group

Abstract: Foreign exchange markets have to deal next to hard facts with lots of expectations and emo-tions. One of the major puzzles in international finance remains the “exchange rate discon-nect puzzle†. Analyzing sentiment in foreign exchange markets, it appears in fact that senti-ment contains some forward looking information. Particularly due to the unknown economic relevance of sentiment in foreign exchange markets so far, we first analyze the relationship between fundamentals and sentiment in order to reveal underlying forces of the latter; sec-ond we accomplish our analysis by concentrating on popular expectation concepts and con-sidering threshold effects. Third, we evaluate sentiment by testing on accuracy and on for-ward looking elements of subsequent exchange rate returns

Keywords: Foreign exchange market; sentiment; bootstrap; threshold (search for similar items in EconPapers)
JEL-codes: G14 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ifn and nep-rmg
Date: 2007-02-02
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