Aggregate Trading Behaviour of Technical Models and the Yen/Dollar Exchange Rate 1976-2007

WIFO Working Paper No. 324

24 Pages Posted: 26 Nov 2010

See all articles by Stephan Schulmeister

Stephan Schulmeister

Austrian Institute of Economic Research

Date Written: 2008

Abstract

The study analyses the interaction between the trading behaviour of 1,024 moving average and momentum models and the fluctuations of the yen-dollar exchange rate. I show first that these models would have exploited exchange rate trends quite profitably between 1976 and 2007. I then show that the aggregate transactions and positions of technical models exert an excess demand pressure on currency markets since they are mostly on the same side of the market. When technical models produce trading signals almost all of them are either buying or selling, when they maintain open positions they are either long or short. A strong interaction prevails between exchange rate movements and the transactions triggered by technical models. An initial rise of the exchange rate due to news, e.g., is systematically lengthened through a sequence of technical buy signals.

Keywords: Exchange Rate, Technical Trading, Speculation, Heterogeneous Agents

JEL Classification: F31, F37, G14, G15

Suggested Citation

Schulmeister, Stephan, Aggregate Trading Behaviour of Technical Models and the Yen/Dollar Exchange Rate 1976-2007 (2008). WIFO Working Paper No. 324. Available at SSRN: https://ssrn.com/abstract=1714341 or http://dx.doi.org/10.2139/ssrn.1714341

Stephan Schulmeister (Contact Author)

Austrian Institute of Economic Research ( email )

P.O.Box 91
Vienna, 1103
Austria
+4317982601 242 (Phone)
+4317989386 (Fax)

HOME PAGE: http://stephan-schulmeister.priv.at/

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