Working Paper: CEPR ID: DP4752
Authors: Thomas Gehrig; Lukas Menkhoff
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. Neither can fund managers be considered as pure fundamentalists, however. 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.
Keywords: foreign exchange; fund management; fundamentals; market microstructure
JEL Codes: F31; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fund Managers rely more on Fundamental Analysis (G11) | FX Dealers (F31) |
| Fund Managers have longer forecasting horizons (G17) | reliance on fundamentals (G32) |
| Fund Managers' decisions influenced by non-fundamental analysis at shorter horizons (G41) | Fund Managers act on non-fundamental behavior (G40) |
| Fund Managers hold more fundamentalist-like views on market imperfections (G40) | FX Dealers (F31) |
| Fund Managers prefer Fundamental Sources of Information (G14) | FX Dealers (F31) |
| Decrease in relative importance assigned to fundamentals from 1992 to 2001 (E65) | Shift towards non-fundamental behavior (E70) |