Can Markov switching models replicate chartist profits in the foreign exchange market?

Dewachter, Hans

doi:10.1016/s0261-5606(00)00046-2

Cited by 89 publications

(47 citation statements)

References 13 publications

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“…Engel (1994) extended the exercise to cover 18 exchange rate series and suggested that the Markov switching model yields superior direction of change forecasts. The successful use of Markov switching models to study exchange rate dynamics has also been reported by, for example, Bollen, Gray, and Whaley (2000) and Dewachter (2001). Marsh (2000), however, showed that Markov switching models for exchange rates are unstable over time and unsuitable for forecasting.…”

Section: Introductionmentioning

confidence: 73%

Exchange Rates and Markov Switching Dynamics

Cheung

Erlandsson

2005

Journal of Business & Economic Statistics

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This article presents a systematic and extensive empirical study on the presence of Markov switching dynamics in three dollar-based exchange rates. A Monte Carlo approach is adopted to circumvent the statistical inference problem inherent to the test of regime-switching behavior. Two data frequencies, two sample periods, and various specifications are considered. Quarterly data yield inconclusive evidence; the test rejects neither random walk nor Markov switching. Monthly data, on the other hand, offer unambiguous evidence of the presence of Markov switching dynamics. The results suggest that data frequency, in addition to sample size, is crucial for determining the number of regimes.

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Section: Introductionmentioning

confidence: 73%

Exchange Rates and Markov Switching Dynamics

Cheung

Erlandsson

2005

Journal of Business & Economic Statistics

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“…Although mainly used to investigate equity markets, the application of Markov models to account for speculative regime shifts is suitable for most financial markets. Dewachter (2001), for example, applied it when examining foreign exchange trading.…”

Section: Literature Reviewmentioning

confidence: 99%

Regime Switching in the Real Estate Risk Premium

Wilson

Okunev

Hutcheson

et al. 2004

Pacific Rim Property Research Journal

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“…A key factor that has recently gained importance on foreign exchange orthodox literature has been the non-linearity of its relationship in several aspects. Since the time series is not linear with respect to itself [14], or with respect to the fundamentals of its economies [3], it might as well not be linear in its relationship with the stock market. On the other hand, just as this finding has opened several possibilities and new theories in the study of exchange rate series, it does so also in the analysis of stock market series.…”

Section: Introductionmentioning

confidence: 99%

Foreign Exchange and Stock Market: Two Related Markets?

Piccillo

2008

SSRN Journal

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This paper studies the relationship between the stock market and the exchange rate in several countries. The approach taken in the first part of this study is a linear VAR, to be compared in the following part to a MS-VAR. The data is also analyzed by Granger causality tests in both contexts and a thorough description of the empirical results obtained is shown. The research uncovers a spread (but not constant over time) causality from the exchange rate and American stock market to the local markets of the different nations studied. The non-linear, time varying approach allows several considerations on the dynamics of the relationship. The markets analyzed are the Japanese, the British and the German (pre-Euro) market against the US Dollar and the US stock market. The frequency of the data used is daily.

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Can Markov switching models replicate chartist profits in the foreign exchange market?

Cited by 89 publications

References 13 publications

Exchange Rates and Markov Switching Dynamics

Exchange Rates and Markov Switching Dynamics

Regime Switching in the Real Estate Risk Premium

Foreign Exchange and Stock Market: Two Related Markets?

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