EconPapers    
Economics at your fingertips  
 

Exchange rate volatility: Trader's beliefs and the role of news

Smita Roy Trivedi

MPRA Paper from University Library of Munich, Germany

Abstract: The study of financial market volatility has focused on the unexpected and expected components of news (Vortelinos, 2015; Omrane and Hafner, 2015). We incorporate the role of biases arising from the 'availability' of recent outcomes to the traders, in influencing trading decisions. The theory of heuristics (Tversky and Kahneman, 1974) is used to build on the theory of trader's biases which helps to understand the reasons behind market volatility. Empirically the model is tested with five minute data on USD/INR and time stamped news from the US and Indian markets. We find that volatility is likely to be in higher ranges with increase in trader's biases, corresponding to unexpected news component. GARCH analysis of returns of average bid-ask rates shows that unexpected news, expected news and bias corresponding to expected news lead to increased volatility.

Keywords: Exchange rate volatility; Unexpected and expected news; Trader's biases (search for similar items in EconPapers)
JEL-codes: B49 C32 F31 (search for similar items in EconPapers)
Date: 2018-09-30
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/89330/2/MPRA_paper_89330.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:89330

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter (winter@lmu.de).

 
Page updated 2025-03-19
Handle: RePEc:pra:mprapa:89330