Working Paper: NBER ID: w7417
Authors: Yinwong Cheung; Menzie D. Chinn
Abstract: We 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.
Keywords: No keywords provided
JEL Codes: F31; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trading strategy (F17) | trader behavior (G41) |
| information dissemination (L86) | exchange rate adjustments (F31) |
| speculative behavior (D84) | market volatility (G17) |
| central bank interventions (E58) | market volatility (G17) |
| economic fundamentals (E25) | trading decisions (G11) |