Interpreting Tests of Forward Discount Bias Using Survey Data on Exchange Rate Expectations PDF Download
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Author: Jeffrey A. Frankel
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 38
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Book Description
Author: Jeffrey A. Frankel
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 38
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Book Description
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Kenneth Froot
Publisher: Legare Street Press
ISBN: 9781019569733
Category :
Languages : en
Pages : 0
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Book Description
In this groundbreaking study, Jeffrey A. Frankel and Kenneth Froot examine the phenomenon of forward discount bias in exchange rates, using survey data to shed light on the behavior of investors and market participants. Their findings have important implications for understanding the dynamics of currency markets. This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work is in the "public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.
Author: Jeffrey A. Frankel
Publisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 42
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Book Description
The paper presents new empirical results that elucidate the dynamics of the foreign exchange market. The first half of the paper is an updated study of the exchange rate expectations held by market participants, as reflected in responses to surveys, and contains the following conclusions. First, the bias observed in the forward discount as a predictor of the future spot rate is not attributable to an exchange risk premium, as is conventionally believed. Second, at short horizons forecasters tend to extrapolate recent trends, while at long horizons they tend to forecast a reversal. Third, the bias in expectations is robust in the samples, based on eight years of data across five currencies. The second half of the paper abandons the framework in which all market participants share the same forecast, to focus on the importance of heterogeneous expectations. Tests suggest that dispersion of opinion, as reflected in the standard deviation across respondents in the survey, affects the volume of trading in the market, and, in turn, the degree of volatility of the exchange rate. An example of how conflicting forecasts can lead to swings in the exchange rate is the model of "chartists and fundamentalists." The market weights assigned to the two models fluctuate over time in response to recent developments, leading to fluctuations in the demand for foreign currency. The paper ends with one piece of evidence to support the model: the fraction of foreign exchange forecasting services that use "technical analysis" did indeed increase sharply during 1983-85, but declined subsequently
Author: Kenneth Froot
Publisher: Nabu Press
ISBN: 9781294451723
Category :
Languages : en
Pages : 86
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Book Description
This is a reproduction of a book published before 1923. This book may have occasional imperfections such as missing or blurred pages, poor pictures, errant marks, etc. that were either part of the original artifact, or were introduced by the scanning process. We believe this work is culturally important, and despite the imperfections, have elected to bring it back into print as part of our continuing commitment to the preservation of printed works worldwide. We appreciate your understanding of the imperfections in the preservation process, and hope you enjoy this valuable book.
Author: Jeffrey A. Frankel
Publisher:
ISBN:
Category : Exchange
Languages : en
Pages : 41
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Book Description
Author: Menzie David Chinn
Publisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 36
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Book Description
Author: Charles Engel
Publisher:
ISBN:
Category : Foreign exchange futures
Languages : en
Pages : 128
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Book Description
Forward exchange rate unbiasedness is rejected in tests from the current floating exchange rate era. This paper surveys advances in this area since the publication of Hodrick's (1987) survey. It documents that the change in the future exchange rate is generally negatively related to the forward discount. Properties of the expected forward forecast error are reviewed. Issues such as the relation of uncovered interest parity to real interest parity, and the implications of uncovered interest parity for cointegration of various quantities are discussed. The modeling and testing for risk premiums is surveyed. Included in this area are tests of the consumption CAPM, tests of the latent variable model, and portfolio-balance models of risk premiums. General equilibrium models of the risk premium are examined and their empirical implications explored. The survey does not cover the important areas of learning and peso problems, tests of rational expectations based on survey data, or the models of irrational expectations and speculative bubbles.
Author: Ross Levine
Publisher:
ISBN:
Category : Economic forecasting
Languages : en
Pages : 84
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Book Description
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 145197020X
Category : Business & Economics
Languages : en
Pages : 36
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Book Description
This paper presents a brief survey of the empirical literature on survey-based exchange rate expectations. The literature in general supports the presence of a non-zero risk premium and rejects the hypothesis of rational expectations. The crucial result is that, while short-run expectations tend to move away from some long-run “normal” values, long-run expectations tend to regress toward them. If this nature of short-run expectations increases the volatility of exchange rate movements, there may be a basis for some official measure to minimize short-run exchange rate movements.
