Nonlinearities and cyclical behavior: the role of chartists and fundamentalists
- We develop a behavioral exchange rate model with chartists and fundamentalists to study cyclical behavior in foreign exchange markets. Within our model, the market impact of fundamentalists depends on the strength of their belief in fundamental analysis. Estimation of a STAR GARCH model shows that the more the exchange rate deviates from its fundamental value, the more fundamentalists leave the market. In contrast to previous findings, our paper indicates that due to the nonlinear presence of fundamentalists, market stability decreases with increasing misalignments. A stabilization policy such as central bank interventions may help to deflate bubbles.
| Verfasserangaben: | Stefan Reitz, Frank Westerhoff |
|---|---|
| URN: | urn:nbn:de:hebis:30-10164 |
| Titel des übergeordneten Werkes (Deutsch): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2003,10 |
| Schriftenreihe (Bandnummer): | CFS working paper series (2003, 10) |
| Dokumentart: | Arbeitspapier |
| Sprache: | Englisch |
| Jahr der Fertigstellung: | 2003 |
| Jahr der Erstveröffentlichung: | 2003 |
| Veröffentlichende Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Datum der Freischaltung: | 13.06.2005 |
| Freies Schlagwort / Tag: | STAR GARCH; nonlinearities; technical and fundamental trading |
| GND-Schlagwort: | GARCH-Prozess; Devisenmarkt; Wechselkurs |
| HeBIS-PPN: | 205394035 |
| Institute: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
| DDC-Klassifikation: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| JEL-Klassifikation: | C Mathematical and Quantitative Methods / C5 Econometric Modeling / C51 Model Construction and Estimation |
| Lizenz (Deutsch): |  Deutsches Urheberrecht |
