Exchange Rate Expectations of Chartists and Fundamentalists

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-technical SummaryThe present study compares exchange rate expectations of "chartists" and "fundamentalists." "Chartists" are those financial market participants who base their forecasts and actions on past price movements of their asset (here: a currency). "Fundamentalists," on the other hand, are financial market participants who base their forecasts and actions on economic models.Various studies give empirical evidence for the presence of chartists and fundamentalists in FX markets. Expectation formation of exchange rate forecasters per se has also been studied from various perspectives in the literature. Our study, however, goes beyond previous research, as it is the first to explicitly connect the two strands of literature: how exactly do professional analysts, who claim to be either chartists or fundamentalists, make their respective exchange rate forecasts?Our study is divided into three parts. In a first step, we analyze chartists' and fundamentalists' forecast behavior. Models including chartists and fundamentalists often make specific assumptions about these two groups. Our research can help verify these assumptions. In a second step, we model forecast dynamics caused by changes in forecasting strategies and identify the factors motivating a change in strategy. Theoretical models with chartists and fundamentalists suppose that chartists do not systematically perform worse than fundamentalists (as would be expected in efficient markets). Therefore, in a third step, we investigate forecasting performance, i.e. whether chartists' forecasts may be used as the basis for profitable trading strategies in the same manner as fundamentalists'.In order to address this question, we combine two data sets. One is a set of micro data consisting of monthly USD/EUR forecasts made by professional analysts starting with the introduction of the Euro. Our second data set comprises information on the self-assessment of almost 400 of these professional analysts, i.e., on the degree to which they claim to rely on fundamental analysis or chart analysis to make their forecasts. The combination of the two data sets allows us to put analysts' selfassessment and their actual forecasts into context. Our panel comprises more than 30,000 observations over the course of 153 months.Our results confirm relevant assumptions made in chartist-fundamentalist models: Chartists follow trends more often than fundamentalists and change the direction of their forecasts more often. However, th...

Data Resource Profile: The ZEW FMS Dataset

“…Use of individual responses. Dick and Menkhoff (2013) It is analyzed if the participants of the ZEW Financial Market survey are either chartists or fundamentalists when forming expectations on the USD/EUR exchange rate. The differences in expectation formation and the consequences for forecast performance are investigated.…”

Analysis on the Development Path of Urban Agglomeration in Gulf Region of Guangdong, Hong Kong, Macao Under the Background of Big Data

“…The above formula is the continuous statistical characteristic quantity of the extracted sampling sequence of the develop the economy growth index information of the Big Gulf Region these three citiese’s city group Big Gulf Region [ 13 ]. Under the constraint of surplus probability, the order relation of the distribution characteristic values of the develop the economy growth index of the Big Gulf Region these three citiese’s city group Big Gulf Region is as follows: …”

Empirical Validation of Agent-Based Models ✶ ✶We gratefully acknowledge the very detailed and careful comments by three anonymous reviewers. Very useful feedback and comments have also been provided by Robert Axtell, Herbert Dawid, Cees Diks, and Blake LeBaron.

“…They also find evidence for the chartist-fundamentalist approach employed in many of the heterogeneous agent models. Dick and Menkhoff (2013) use forecasters' self-assessment to classify themselves as chartists, fundamentalists, or a mix. They find that forecasters who characterize their forecasting tools as chartist use trend-following strategies and those that are categorized as fundamentalist have a stronger tendency toward purchasing power parity.…”