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 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.

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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:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:exchange rates; multi agent models; regime-switching
Issue:Version March 2003
Page Number:30
HeBIS-PPN:210694173
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:C Mathematical and Quantitative Methods / C3 Multiple or Simultaneous Equation Models / C32 Time-Series Models; Dynamic Quantile Regressions (Updated!)
Licence (German):License LogoDeutsches Urheberrecht