The Rise of Fund Managers in Foreign Exchange: Will Fundamentals Ultimately Dominate?

22 Pages Posted: 21 Apr 2005

See all articles by Thomas Gehrig

Thomas Gehrig

University of Vienna - Faculty of Business, Economics, and Statistics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Vienna Graduate School of Finance (VGSF); Systemic Risk Centre - LSE

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

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Abstract

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. However, neither can fund managers be considered as pure fundamentalists. 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.

Suggested Citation

Gehrig, Thomas and Menkhoff, Lukas, The Rise of Fund Managers in Foreign Exchange: Will Fundamentals Ultimately Dominate?. The World Economy, Vol. 28, No. 4, pp. 519-540, April 2005. Available at SSRN: https://ssrn.com/abstract=704701

Thomas Gehrig (Contact Author)

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Vienna, A-1210
Austria

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Systemic Risk Centre - LSE ( email )

Houghton St, London WC2A 2AE, United Kingdom
London

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

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