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 paper, two-state Markov models for three daily exchange rate series are estimated and the profitability of following the generated forecasts using the performance of simple chartist trading rules as benchmarks is investigated.
Abstract: This paper estimates two-state Markov models for three daily exchange rate series, and investigates the profitability of following the generated forecasts using the performance of simple chartist trading rules as benchmarks. It is shown that (1) the data are well approximated by Markov models, (2) the performance of previously profitable trading rules has dramatically declined in the 1990s, and (3) the Markov models are unstable and not suitable for forecasting in their current form. Copyright © 2000 John Wiley & Sons, Ltd.
116 citations
Posted Content•
TL;DR: In this paper, the authors investigate the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market and show that these deviations are due to risk premia, and that the same premia should be observed in nominal bonds denominated in different currencies.
Abstract: This paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market. If these deviations are due to risk premia then the same premia should be observed in nominal bonds denominated in different currencies. This condition imposes testable restrictions on the parameters of a mutivariate regression model. The empirical results are consistent with a world in which time varying risk premia cause the observed deviations from unbiased expectations.
116 citations
Book•
01 Apr 1988
TL;DR: The case for floating exchange rates was discussed in this paper, where some basic concepts and stylised facts and the case for (and against) floating exchange rate were discussed. But the case was not supported by empirical evidence.
Abstract: 1. Introduction: Some Basic Concepts and Stylised facts and the Case For (and Against) Floating Exchange Rates 2. Purchasing Power Parity and the PPP Puzzle 3. The Economics of the PPP Puzzle 4. The Flexible Price Monetary Model 5. The Sticky Price Monetary Model 6. Empirical Evidence on the Monetary Exchange Rate Model 7. Currency Substitution and Portfolio Balance Models 8. Real Exchange Rate Determination: Theory and Evidence 9. Equilibrium Exchange Rates: Measurement and Misalignment 10. The New Open Economy Macroeconomics and Exchange Rate Behaviour 11. The New Open Economy Macroeconomics: Pricing to Market and Exchange Rate Volatility Redux 12. The Economics of Fixed Exchange Rates, Part 1: Target Zone Models 13. The Economics of Fixed Exchange Rates, Part 2: Speculative Attack Models and Contagion 14. The Market Microstructure Approach to the Foreign Exchange Market 15. Spot and Forward Exchange Rates and the Forward Premium Puzzle
115 citations
TL;DR: This paper examined the high-frequency evidence on the yen/dollar exchange rate in 1998 and provided a detailed characterization of the return volatility, concluding that order flow played a more important role than news regarding fundamentals.
Abstract: The yen provided foreign exchange market participants with 'once-in-a-generation' volatility movements in 1998. For instance, after many months of uneven yen depreciation a remarkable period of yen appreciation was experienced where, in one two-day period, the U.S. dollar dropped in value by 20 yen, market-makers were refusing to quote yen/dollar prices for more than $1 million, and funds with short yen positions incurred massive losses. Not since the early 1970s has the yen-dollar exchange rate experienced such shifts. Analysts claimed that the yen reversal was due to order flow driven by changing tastes for risk and hedge-fund herding on unwinding yen 'carry trade' positions rather than any fundamentals related to the yen. In this paper, we examine the high-frequency evidence on the yen/dollar exchange rate in 1998 and provide a detailed characterization of the return volatility. Evidence of shifting fundamentals is provided by a comprehensive list of macroeconomic announcements from both the U.S. and Japan. While macroeconomic announcements and intervention are found to have significant effects on volatility, our results lead to the conclusion that order flow played a more important role than news regarding fundamentals. Evidence regarding the independent effect of order flow was provided by spot, forward, and futures positions of major market participants. These position changes are found to be significant determinants of volatility. Since such portfolio shifts are revealed to the market through trading, the results are consistent with order flow playing a significant role in the revelation of private information and the associated exchange rate shifts.
115 citations