Citation

Discussion Paper Details

Please find the details for DP6738 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Dispersion of Beliefs in the Foreign Exchange Market

Author(s): Ron Jongen, Willem F C Verschoor, Christian C Wolff and Remco C.J. Zwinkels

Publication Date: March 2008

Keyword(s): exchange rates, expectations, heterogeneity and survey data

Programme Area(s): Financial Economics and International Macroeconomics

Abstract: This paper analyzes the sources of the differential beliefs of market participants in the foreign exchange market and their relative role in forming exchange rate expectations. We find that there are distinct periods of high and low dispersion and document that dispersion arises because of a combined effect of market participants holding individual information and attach different weights to some elements of the common information set. In addition to these two effect, we also document evidence of the existence of different types of agents and find that chartist rules are predominantly used at the shorter spectrum of the forecast horizon and fundamentalist rules are predominantly used at the longer spectrum of the forecast horizon. Finally, our evidence suggests that the relationship between market volatility and trader dispersion tends to be significant and positive for different measures of both trader heterogeneity and market volatility.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6738

Bibliographic Reference

Jongen, R, Verschoor, W, Wolff, C and Zwinkels, R. 2008. 'Dispersion of Beliefs in the Foreign Exchange Market'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6738