Topic
Foreign exchange market
About: Foreign exchange market is a research topic. Over the lifetime, 6661 publications have been published within this topic receiving 153384 citations. The topic is also known as: forex & FX.
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TL;DR: In this article, the impact of market consolidation or fragmentation on the performance of the exchange market was examined in four alternative models of exchange: a consolidated clearing house, fragmented clearing houses, a monopoly dealer market, and an interdealer market.
Abstract: This paper studies the impact of market consolidation or fragmentation on its performance, examining four alternative models of exchange: a consolidated clearing house, fragmented clearing houses, a monopoly dealer market, and an interdealer market. The effects of the market mechanism on the expected quantity traded, the price variance faced by individual traders, the quality of market price signals, the expected gains from trade, and the exchange implementation costs are studied.
219 citations
TL;DR: This article examined the implications of differences in strategy and industry structure for firms' economic exposures to foreign exchange rate movements and found that 13 to 17 percent of U.S. manufacturing firms are exposed to currency movements.
Abstract: This study examines the implications of differences in strategy and industry structure for firms' economic exposures to foreign exchange rate movements. In contrast with previous research using a single currency proxy, this study estimates firms' exposures using a multiple currency model. The empirical evidence from U.S. manufacturing firms indicates that 13 to 17 percent of firms are exposed to foreign exchange rate movements. Results from cross-sectional analyses reveal that foreign direct investment reduces economic exposure to foreign exchange rate movements.
216 citations
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TL;DR: The last 15 years have seen a revolution in the way financial economists understand the world around us as mentioned in this paper, and the average returns of many investment opportunities cannot be explained by the capital asset pricing model.
Abstract: The last 15 years have seen a revolution in the way financial economists understand the world around us. We once thought that stock and bond returns were essentially unpredictable. Now we recognize that stock and bond returns have a substantial predictable component at long horizons. We once thought the capital asset pricing model (CAPM) provided a good description of why average returns on some stocks, portfolios, funds or strategies were higher than others. Now we recognize that the average returns of many investment opportunities cannot be explained by the CAPM, and multifactor models' have supplanted the CAPM to explain them. We once thought that long-term interest rates reflected expectations of future short term rates and that interest rate differentials across countries reflected expectations of exchange-rate depreciation. Now, we see time-varying risk premia in bond and foreign exchange markets as well as in stock markets. Once, we thought that mutual fund average returns were well explained by the CAPM. Now, we recognize ``value'' and other high return strategies in funds, and slight persistence in fund performance. In this article, I survey these new facts. I show how they are related. Each case uses price variables to infer market expectations of future returns; each case notices that an offsetting adjustment (to dividends, interest rates, or exchange rates) seems to be absent or sluggish. Each case suggests that financial markets offer rewards in the form of average returns for holding risks related to recessions and financial distress, in addition to the risks represented by overall market movements.
213 citations
TL;DR: In this paper, the authors analyze the intertemporal stability of returns to technical trading rules in the foreign exchange market by conducting true, out-of-sample tests on previously published rules.
Abstract: We analyze the intertemporal stability of returns to technical trading rules in the foreign exchange market by conducting true, out-of-sample tests on previously published rules. The excess returns of the 1970s and 1980s were genuine and not just the result of data mining. But these profit opportunities had disappeared by the mid-1990s for filter and moving average (MA) rules. Returns to less-studied rules, such as channel, ARIMA, genetic programming and Markov rules, also have declined, but have probably not completely disappeared. The volatility of returns makes it difficult to estimate mean returns precisely. The most likely time for a structural break in the MA and filter rule returns is the early 1990s. These regularities are consistent with the Adaptive Markets Hypothesis (Lo, 2004), but not with the Efficient Markets Hypothesis.
213 citations
TL;DR: An explicit Fokker-Planck equation is presented which models very precisely the empirical probability distributions, in particular, their non-Gaussian heavy tails.
Abstract: It is shown that price changes of the U.S. dollar--German mark exchange rates upon different delay times can be regarded as a stochastic Marcovian process. Furthermore, we show how Kramers-Moyal coefficients can be estimated from the empirical data. Finally, we present an explicit Fokker-Planck equation which models very precisely the empirical probability distributions, in particular, their non-Gaussian heavy tails.
212 citations