Heterogeneous expectations in the foreign exchange market : evidence from the daily Dollar/DM exchange rate
- In this study a regime switching approach is applied to estimate the chartist and fundamentalist (c&f) exchange rate model originally proposed by Frankel and Froot (1986). The c&f model is tested against alternative regime switching specifications applying likelihood ratio tests. Nested atheoretical models like the popular segmented trends model suggested by Engel and Hamilton (1990) are rejected in favour of the multi agent model. Moreover, the c&f regime switching model seems to describe the data much better than a competing regime switching GARCH(1,1) model. Finally, our findings turned out to be relatively robust when estimating the model in subsamples. The empirical results suggest that the model is able to explain daily DM/Dollar forward exchange rate dynamics from 1982 to 1998.
| Author: | Ralf Ahrens, Stefan Reitz |
|---|---|
| URN: | urn:nbn:de:hebis:30-10176 |
| URL: | https://www.ifk-cfs.de/395.html |
| Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2003,11 |
| Series (Serial Number): | CFS working paper series (2003, 11) |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2003 |
| Year of first Publication: | 2003 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2005/06/13 |
| Tag: | exchange rates; multi agent models; regime-switching |
| Issue: | Version March 2003 |
| Page Number: | 30 |
| HeBIS-PPN: | 210694173 |
| Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| JEL-Classification: | C Mathematical and Quantitative Methods / C3 Multiple or Simultaneous Equation Models / C32 Time-Series Models; Dynamic Quantile Regressions (Updated!) |
| Licence (German): |  Deutsches Urheberrecht |
