How do UK-based foreign exchange dealers think their market operates?
Cheung, Yin-Wong, Chinn, Menzie David and Marsh, Ian W. (1999) How do UK-based foreign exchange dealers think their market operates? Working Paper. University of Warwick: Warwick Business School Financial Econometrics Research Centre. Working Papers Series, Vol.1999 (No.21).
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This paper summarises the results of a survey of UK based
foreign exchange dealers conducted in 1998. It addresses topics in three
main areas: The microeconomic operation of the foreign exchange
market; the beliefs of dealers regarding the importance, or otherwise, of
macroeconomic fundamental factors in affecting exchange rates;
microstructure factors in FX. We find that heterogeneity of traders’ beliefs
is evident from the results but that it is not possible to explain such
disagreements in terms of institutional detail, rank or trading technique
(e.g. technical analysts versus fundamentalists). As expected, nonfundamental
factors are thought to dominate short horizon changes in
exchange rates, but fundamentals are deemed important over much
shorter horizons that the mainstream empirical literature would suggest.
Finally, market ‘norms’ and behavioural phenomena are very strong in the
FX market and appear to be key determinants of the bid-ask spread.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School
|Library of Congress Subject Headings (LCSH):||Foreign exchange -- Great Britain, Brokers -- Great Britain|
|Series Name:||Working Papers Series|
|Publisher:||Warwick Business School Financial Econometrics Research Centre|
|Place of Publication:||University of Warwick|
|Official Date:||June 1999|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||University of Strathclyde|
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