Bulls, bears and excess volatility: can currency intervention help?
Corrado, Luisa, Miller, Marcus and Zhang, Lei. (2007) Bulls, bears and excess volatility: can currency intervention help? International Journal of Finance & Economics, Vol.12 (No.2). pp. 261-272. ISSN 1076-9307Full text not available from this repository.
Official URL: http://dx.doi.org/10.1002/ijfe.329
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.|
|Official Date:||April 2007|
|Number of Pages:||12|
|Page Range:||pp. 261-272|
|Access rights to Published version:||Restricted or Subscription Access|
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