Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5085367 | International Review of Financial Analysis | 2008 | 26 Pages |
Abstract
Using a new theoretical model of investor expectations in the foreign exchange market, this research finds investor forecasts to be rational. For instance, expectations are not characterized by fat-tailed distributions that might reflect optimistic bubbles and panic. They are also found to rationally predict a correlation between exchange rates and political factors such as modeled “pain” indexes and currency bands. Most importantly, the model detects an ex-ante investor prediction of a small probability of a large currency change that empirically explains ex-post forecasting biases.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Austin Murphy,