Exchange rate expectations of chartists and fundamentalists

Christian Dick and Lukas Menkhoff

No 12-026, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper provides novel evidence on exchange rate expectations of both chartists and fundamentalists separately. These groups indeed form expectations differently. Chartists change their expectations more often; however, all professionals' expectations vary considerably as they generally follow strong exchange rate trends. In line with non-linear exchange rate-modeling, professionals expect mean reversion only if exchange rates deviate much from PPP. Chartists survive in FX markets as they forecast equally accurately as fundamentalists. Unexpected from an efficient market viewpoint, chartists even outperform fundamentalists at short horizons. Overall, these findings clearly support the chartist-fundamentalist approach.

Keywords: exchange rate formation; expectation formation; heterogeneous agent models; forecasting performance (search for similar items in EconPapers)
JEL-codes: D84 F31 G15 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-for and nep-mon
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https://www.econstor.eu/bitstream/10419/57180/1/690159315.pdf (application/pdf)

Related works:
Journal Article: Exchange rate expectations of chartists and fundamentalists (2013)
Working Paper: Exchange Rate Expectations of Chartists and Fundamentalists (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:12026

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