Heterogeneous expectations in the foreign exchange market : evidence from the daily Dollar/DM exchange rate

In this study a regime switching approach is applied to estimate the chartist and fundamentalist (c&f) exchange rate model originally proposed by Frankel and Froot (1986). The c&f model is tested against alternative regi
In this study a regime switching approach is applied to estimate the chartist and fundamentalist (c&f) exchange rate model originally proposed by Frankel and Froot (1986). The c&f model is tested against alternative regime switching specifications applying likelihood ratio tests. Nested atheoretical models like the popular segmented trends model suggested by Engel and Hamilton (1990) are rejected in favour of the multi agent model. Moreover, the c&f regime switching model seems to describe the data much better than a competing regime switching GARCH(1,1) model. Finally, our findings turned out to be relatively robust when estimating the model in subsamples. The empirical results suggest that the model is able to explain daily DM/Dollar forward exchange rate dynamics from 1982 to 1998.
show moreshow less

Download full text files

Export metadata

  • Export Bibtex
  • Export RIS

Additional Services

    Share in Twitter Search Google Scholar
Metadaten
Author:Ralf Ahrens, Stefan Reitz
URN:urn:nbn:de:hebis:30-10176
URL:https://www.ifk-cfs.de/395.html
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2003,11
Series (Serial Number):CFS working paper series (2003, 11)
Document Type:Working Paper
Language:English
Year of Completion:2003
Year of first Publication:2003
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:exchange rates; multi agent models; regime-switching
Issue:Version March 2003
Pagenumber:30
HeBIS PPN:210694173
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:C32 Time-Series Models; Dynamic Quantile Regressions (Updated!)
F31 Foreign Exchange
F37 International Finance Forecasting and Simulation
G12 Asset Pricing; Trading volume; Bond Interest Rates
G15 International Financial Markets
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

$Rev: 11761 $