Heterogeneity in exchange rate expectations: Evidence on the chartist–fundamentalist approach

Abstract

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The effects of Japanese interventions on FX-forecast heterogeneity

“…MacDonald and Marsh (1996), Elliot and Ito (1999), Bénassy-Quéré et al (2003), and Dreger and Stadtmann (2008) all find evidence in favor of foreign exchange forecasters' heterogeneity. Investigating the determinants of forecast dispersion, Menkhoff et al(2009) find strong support for the chartist and fundamentalist approach pioneered by Frankel and Froot (1990). The authors show that the recent exchange rate change as well as the degree of misalignment explain the dispersion of forecasts.…”

“…The authors find that neither expected nor unexpected interventions have an impact on forecast heterogeneity between 1992 and 1994, while the estimated coefficients based on the period 1996 -2001 are statistically significant but ambiguously signed. Against the backdrop of the results presented in Menkhoff et al (2009) and studies of Bank of Japan reaction functions (Frenkel et al, 2005;Ito and Yabu, 2007) these findings may be due to an omitted variable problem, as current misalignment and recent returns of the exchange rate seem to be important not only for central bank intervention activity, but also for forecast heterogeneity. This paper investigates the determinants of forecast heterogeneity in the Yen-US dollar market by applying a large panel data set from Consensus Economics Inc. We consider a number of control variables such as the prevailing volatility regime as well as the risk premium at the foreign exchange market.…”

“…Risk is measured as the absolute difference between the one month forward rate and the mean expected exchange rate level. This measure is motivated by Menkhoff et al (2009) referring to the noise trader theory. We also control for the exchange rate volatility.…”

Heterogeneous Beliefs and Asset Price Dynamics: A Survey of Recent Evidence

“…Finally, rather than explaining price movements or expectations directly, a few papers explain the dispersion of beliefs by a model with chartists and fundamentalists (Menkhoff et al, 2009;Jongen et al, 2012). They provide further evidence that agents in the foreign exchange market are heterogeneous due to the use of these different forecasting approaches.…”

Quantifying survey expectations: What’s wrong with the probability approach?

“…While many shortcomings of available quantification methods have been discussed (see Nardo, 2003, for an overview), it is still common to apply variants of these quantification techniques when confronted with qualitative data (e.g. Doepke et al, 2008, Mankiw et al, 2003, Menkhoff et al, 2009.…”