Chartists, Fundamentalists, and Dispersion in the Foreign Exchange Market

34 Pages Posted: 16 Mar 2009

See all articles by Ron Jongen

Ron Jongen

Dutch Central Bank (DNB)

Christian C. P. Wolff

University of Luxembourg - Luxembourg School of Finance; Centre for Economic Policy Research (CEPR)

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: March 13, 2009

Abstract

This paper examines the dispersion of beliefs of market participants in the foreign exchange market and their relative role in forming exchange rate expectations. We find distinct variations in the level of dispersion and document that dispersion arises because of a combined effect of market participants holding private information and participants attaching different weights to fundamental, technical, and carry trade analyses. We also document evidence that chartist rules are predominantly used in the shorter spectrum of the forecast horizon and fundamentalist rules are predominantly used in the longer spectrum, and that the importance attached to these rules is adapted through time.

Keywords: Chartists, exchange rate expectations, fundamentalists, heterogeneity, dispersion of beliefs, bounded rationality, survey data

JEL Classification: F3, G12

Suggested Citation

Jongen, Ron and Wolff, Christian C. P. and Zwinkels, Remco C.J. and Verschoor, Willem F. C., Chartists, Fundamentalists, and Dispersion in the Foreign Exchange Market (March 13, 2009). Available at SSRN: https://ssrn.com/abstract=1359220 or http://dx.doi.org/10.2139/ssrn.1359220

Ron Jongen

Dutch Central Bank (DNB) ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

Christian C. P. Wolff

University of Luxembourg - Luxembourg School of Finance ( email )

4, rue Albert Borschette
Luxembourg, 1246
Luxembourg

HOME PAGE: http://www.lsf.lu

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Remco C.J. Zwinkels

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NL-1081HV
Netherlands
+31 20 59 85220 (Phone)

HOME PAGE: http://research.vu.nl/en/persons/remco-zwinkels

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Willem F. C. Verschoor (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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