DP4752 The Rise of Fund Managers in Foreign Exchange

Author(s): Thomas Gehrig, Lukas Menkhoff
Publication Date: October 2004
Keyword(s): foreign exchange, fund management, fundamentals, market microstructure
JEL(s): F31, G23
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4752

This Paper analyses the behaviour and motivation of fund managers in foreign exchange markets reflected in questionnaire evidence. We find that fund managers and FX dealers differ significantly. Fund managers rely more on fundamentals, basically due to their longer forecasting horizons, and reject non-fundamental influences on exchange rates more than FX dealers. Neither can fund managers be considered as pure fundamentalists, however. Non-fundamentalist positions markedly influence short-term decision-making. They inspire ambivalent views about market imperfections and these views seem to become stronger over time. This latter change counterbalances the strengthening fundamental influences resulting from the rise of fund managers.