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Bulls, bears and excess volatility: can currency intervention help?
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Corrado, Luisa, Miller, Marcus, 1941- and Zhang, Lei, Dr.. (2007) Bulls, bears and excess volatility: can currency intervention help? International Journal of Finance & Economics, Vol.12 (No.2). pp. 261-272. ISSN 1076-9307
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Official URL: http://dx.doi.org/10.1002/ijfe.329
Abstract
Asset mis-pricing may reflect investor psychology; and excess volatility can arise from switches of sentiment. For a floating exchange rate where fundamentals follow a random walk, we show that excess volatility can be generated by the repeated entry and exit of currency 'bulls' and 'bears' with switches driven by 'draw-down' trading rules. We argue that non-sterilized intervention-in support of 'monitoring band'-can reduce excess volatility by coordinating belief's in line with policy. Strategic cornplementarity in the foreign exchange market suggests that sterilized intervention may also play a coordinating role. Copyright (c) 2007 John Wiley & Sons, Ltd.
| Item Type: | Journal Article |
|---|---|
| Subjects: | H Social Sciences > HG Finance |
| Divisions: | Faculty of Social Sciences > Economics |
| Journal or Publication Title: | International Journal of Finance & Economics |
| Publisher: | John Wiley & Sons Ltd. |
| ISSN: | 1076-9307 |
| Date: | April 2007 |
| Volume: | Vol.12 |
| Number: | No.2 |
| Number of Pages: | 12 |
| Page Range: | pp. 261-272 |
| Identification Number: | 10.1002/ijfe.329 |
| Status: | Peer Reviewed |
| Publication Status: | Published |
| Access rights to Published version: | Restricted or Subscription Access |
| URI: | http://wrap.warwick.ac.uk/id/eprint/31958 |
Data sourced from Thomson Reuters' Web of Knowledge
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