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: Neely as mentioned in this paper briefly explains the fundamentals of technical analysis and the efficient markets hypothesis as applied to the foreign exchange market, evaluates the profitability of simple trading rules, and reviews recent ideas that might justify extrapolative technical analysis.
Abstract: Economists have traditionally been skeptical of the value of technical analysis, the use of past price behavior to guide trading decisions in asset markets. Instead, they have relied on the logic of the efficient markets hypothesis. Christopher J. Neely briefly explains the fundamentals of technical analysis and the efficient markets hypothesis as applied to the foreign exchange market, evaluates the profitability of simple trading rules, and reviews recent ideas that might justify extrapolative technical analysis.
177 citations
TL;DR: In this paper, the authors examined the impact of macroeconomic shocks on carry trade and found that demand and confidence shocks are associated with longer-term gains from carry trade activity, relative to supply and monetary policy shocks.
Abstract: Carry trades - a popular strategy in the foreign exchange market - are long positions in high interest rate currencies financed by borrowing low interest rate currencies. Such positions are held as long as i) there remains a significant interest rate differential between the two currency groups and/or ii) exchange rate risk remains low. When either or both such conditions are violated positions are typically unwound, triggering rapid movements in the exchange rate level and its volatility and spillovers to other asset classes as well as to real activity. The recent global deleveraging has clearly evidenced the strength of this channel. From a financial standpoint, the mechanics of the carry trade has been recently examined in Brunnermeier et al. (2009). They showed that shocks to interest rate differentials lead to carry trade activity and to significant reactions in the bilateral exchange rates vis-a-vis the US dollar that they analyse. Starting from their paper, we take a more macroeconomic standpoint and aim to identify what kind of structural shock can generate the implications of their interest rate differential shock. To this aim we add two macroeconomic variables and two indicators of confidence to the 4-variable financial VAR of Brunnermeier et al. (2009) and use sign restrictions on the impulse responses of the resulting larger VAR to identify four macroeconomic shocks. We evidence that although all shocks may potentially have effects on developments in the interest rate differential and the exchange rate level that overall make carry trading profitable in the short run, demand shocks and confidence shocks only are associated with longer-term gains from carry trade activity, relative to supply and monetary policy shocks. This finding also supports the widely reported idea that sentiment boosts position taking. We also provide a measure of the potential gain/losses experienced by the actual positioning of market participants in the foreign exchange futures market, conditional on their ability to correctly anticipate the nature of the prevailing macroeconomic shock.
175 citations
TL;DR: In this article, the authors examined whether Asian emerging stock markets (India, Korea, Malaysia, Philippines, Taiwan, and Thailand) have become integrated into world capital markets since their official liberalization dates by estimating and testing a dynamic integrated international capital asset pricing model (ICAPM) in the absence of purchasing power parity (PPP) using an asymmetric multivariate GARCH(1,1)-in-Mean approach.
174 citations
TL;DR: In this article, the authors present findings of a questionnaire and an interview survey on the perceived importance of chartist/technical and fundamental analysis among foreign exchange traders and financial journalists in Frankfurt, London, Vienna, and Zurich.
Abstract: This article presents findings of a questionnaire and an interview survey on the perceived importance of chartist/technical and fundamental analysis among foreign exchange traders and financial journalists in Frankfurt, London, Vienna, and Zurich. Results confirm that most traders use both forecasting approaches, and that the shorter the forecasting horizon, the more important chartist/technical analysis is. Financial journalists put more emphasis on fundamental analysis than do foreign exchange traders. Results indicate that the importance of chartism may have increased over the last decade. Regarding the use of chartist/technical and fundamental analysis on seven forecasting horizons, four distinct clusters of traders can be identified. Forecasting styles and the overall importance attached to fundamental versus chartist/technical analysis vary across different trading locations. Foreign exchange traders mention a series of psychological motives and consequences of the use of chartism. Copyright © 2001 John Wiley & Sons, Ltd.
174 citations
TL;DR: In this article, a risk-averse firm's decisions on the level of trade, when the exchange rate and the commodity price are uncertain, and the extent of forward exchange and commodity futures commitments are examined.
173 citations