Macroeconomic Implications of the Beliefs and Behavior of Foreign Exchange TradersWe report findings from a survey of United States foreign exchange traders. Our results indicate that (i) technical trading best characterizes about 30% of traders, with this proportion rising from five years ago; (ii) news about macroeconomic variables is rapidly incorporated into exchange rates; (iii) the importance of individual macroeconomic variables shifts over time, although interest rates always appear to be important, and; (iv) economic fundamentals are perceived to be more important at longer horizons. The short run deviations of exchange rates from their fundamentals are attributed to excess speculation and institutional customer/hedge fund manipulation. Speculation is generally viewed positively, as enhancing market efficiency and liquidity, even though it exacerbates volatility. Central bank intervention does not appear to have a substantial effect, although there is general agreement that it increases volatility. Finally, traders do not view purchasing power parity as a useful concept, even though a significant proportion (40%) believe that it affects exchange rates at horizons of over six months. |
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adjustment analysis bandwagon effects bid-ask spread category are reported central bank intervention Chartists Chinn component frequencies customer orders customer/hedge fund manipulation due to rounding economic announcements economic fundamentals Economist Effects of Speculation excess speculation exchange rate dynamics Exchange Rate Models exchange rate movements factors five years ago Foreign Exchange Intervention foreign exchange market foreign exchange traders Frankel and Froot fundamental analysis Fundamental Value fundamentalists FX market hedge funds importance incomplete replies institutional customer/hedge fund interbank interest rate International Economics Intraday Medium Run Journal of International Long Run longer horizons macroeconomic fundamentals macroeconomic variables major trading banks market convention market efficiency market liquidity Market Microstructure Monetary Economics money supply multiple responses NBER Working Papers NO_OPINION Number Author(s Osler over-reaction papers in hard Partial Subscription percentages of respondents position limit proportion purchasing power parity Real Exchange Rates relative respondents indicate responses or incomplete Rogoff survey trade deficit value at risk