We develop a behavioral exchange rate model with chartists and fundamentalists to study cyclical behavior in foreign markets. Within our model, the market impact of depends on strength their belief fundamental analysis. Estimation STAR GARCH shows that more deviates from its value, leave market. In contrast previous findings, paper indicates due nonlinear presence fundamentalists, stability decreases increasing misalignments. A stabilization policy such as central bank interventions may help...

Abstract While some of the recent surges in oil prices can be attributed to a robust global demand at time tight production capacities, commentators occasionally also blame impact speculators for part price pressure. We propose an empirical market model with heterogeneous speculators. Whereas trend-extrapolating chartists may tend destabilize market, fundamentalists exercise stabilizing effect on dynamics. Using monthly data West Texas Intermediate prices, our STR-GARCH estimates indicate...

In this paper we provide evidence for Evans and Lyons' (2005b) model of an information aggregation process in FX markets using a German bank's end-user order flow from 2002 to 2003. Though customer is unambiguously the vehicle incorporating non-public into exchange rates over time, our empirical analysis does not support widespread optimism market microstructure literature that high-powered source easily exploitable short-run speculation. Moreover, commercial customers' produces negative...

In this paper we provide evidence for Evans and Lyons' (2005b) model of an information aggregation process in FX markets, using a rich data base on German bank's end-user order flow from 2002 to 2003. Though customer is unambiguously the vehicle incorporating non-public into exchange rates over time, our empirical analysis does not support widespread optimism market microstructure literature that high-powered source easily exploitable short-run speculation. Moreover, commercial customers'...

While some of the recent surge oil prices can be attributed to robust global demand at a time tight production capacities, commentators occasionally also blame impact speculators for part price pressure. We propose an empirical market model with heterogeneous speculators. Whereas trend-extrapolating chartists may tend destabilize market, fundamentalists exercise stabilizing effect on dynamics. Using monthly data WTI prices, our STR-GARCH estimates indicate that cycles indeed emerge due...

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The coordination channel has been proposed as a means by which foreign

This paper empirically investigates the Evans and Lyons' [2002. Understanding order flow. International Journal of Finance Economics 11: 3–23] model foreign exchange market from a dealer's perspective. We provide evidence suggested information aggregation process using rich database on German bank's end-user flow 2002 to 2003. Although customer is unambiguously vehicle incorporating non-public into rates over time, our empirical analysis does not support idea that high-powered source easily...

We present a simple behavioral model with chartists and fundamentalists analyze their trading behavior in both floating target zone exchange rate regime. When applied to the regime, replicates well-known stylized facts, such as excess volatility, fat tails, volatility clustering disconnect. Our main result is that when credible zone, our predicts remains center of band for considerable period, even though fundamental does not exhibit mean reversion tendencies. This consistent empirical...