An empirical examination of heterogeneity and switching in foreign exchange markets

Goldbaum, D; Zwinkels, RCJ

An empirical examination of heterogeneity and switching in foreign exchange markets

Goldbaum, D

Zwinkels, RCJ

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Publication Type:: Journal Article
Citation:: Journal of Economic Behavior and Organization, 2014, 107 pp. 667 - 684
Issue Date:: 2014-01-01

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Field	Value	Language
dc.contributor.author	Goldbaum, D https://orcid.org/0000-0002-4228-1408	en_US
dc.contributor.author	Zwinkels, RCJ	en_US
dc.date.available	2020-05-25T19:03:42Z
dc.date.issued	2014-01-01	en_US
dc.identifier.citation	Journal of Economic Behavior and Organization, 2014, 107 pp. 667 - 684	en_US
dc.identifier.issn	0167-2681	en_US
dc.identifier.uri	http://hdl.handle.net/10453/43576
dc.description.abstract	© 2013 Elsevier B.V. In order to study the expectation formation of financial institutions in the foreign exchange market we develop and apply a recursive selection and estimation algorithm to a dataset of surveyed foreign exchange market expectations. Responses are classified into two groups and forecasting models are endogenously determined within the groups. Estimation results reveal that a fundamentalist-chartist model is capable of explaining a large portion of foreign exchange market expectations. Fundamentalists are found to have mean-reverting expectations whereas chartists have contrarian expectations. Allowing panelists to switch between models significantly improves the fit of the model, especially at the relatively shorter forecast horizons. We find that the fundamentalist model is increasingly used as the forecast horizon extends. Finally, results indicate that model choice is based on a combination of period-specific and individual-specific determinants.	en_US
dc.relation.ispartof	Journal of Economic Behavior and Organization	en_US
dc.relation.isbasedon	10.1016/j.jebo.2013.08.004	en_US
dc.subject.classification	Economics	en_US
dc.title	An empirical examination of heterogeneity and switching in foreign exchange markets	en_US
dc.type	Journal Article
utslib.citation.volume	107	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1403 Econometrics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.publication-status	Published	en_US
pubs.volume	107	en_US

Abstract:

© 2013 Elsevier B.V. In order to study the expectation formation of financial institutions in the foreign exchange market we develop and apply a recursive selection and estimation algorithm to a dataset of surveyed foreign exchange market expectations. Responses are classified into two groups and forecasting models are endogenously determined within the groups. Estimation results reveal that a fundamentalist-chartist model is capable of explaining a large portion of foreign exchange market expectations. Fundamentalists are found to have mean-reverting expectations whereas chartists have contrarian expectations. Allowing panelists to switch between models significantly improves the fit of the model, especially at the relatively shorter forecast horizons. We find that the fundamentalist model is increasingly used as the forecast horizon extends. Finally, results indicate that model choice is based on a combination of period-specific and individual-specific determinants.

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http://hdl.handle.net/10453/43576