Macroeconomic Implications of the Beliefs and Behavior of Foreign Exchange Traders / Yin-Wong Cheung, Menzie D. Chinn.

Format:

Book

Author/Creator:

Cheung, Yin-Wong.

Contributor:

National Bureau of Economic Research.

Chinn, Menzie D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7417.

NBER working paper series no. w7417

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Summary:

We report findings from a survey of United States foreign exchange traders. Our results indicate that (i) technical trading best characterizes about 30% of traders, with this proportion rising from five years ago; (ii) news about macroeconomic variables is rapidly incorporated into exchange rates; (iii) the importance of individual macroeconomic variables shifts over time, although interest rates always appear to be important, and; (iv) economic fundamentals are perceived to be more important at longer horizons. The short run deviations of exchange rates from their fundamentals are attributed to excess speculation and institutional customer/hedge fund manipulation. Speculation is generally viewed positively, as enhancing market efficiency and liquidity, even though it exacerbates volatility. Central bank intervention does not appear to have a substantial effect, although there is general agreement that it increases volatility. Finally, traders do not view purchasing power parity as a useful concept, even though a significant proportion (40%) believe that it affects exchange rates at horizons of over six months.

Notes:

Print version record

November 1999.