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Uncertainty aversion in a heterogeneous agent model of foreign exchange rate formation
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Kozhan, Roman and Salmon, Mark (2009) Uncertainty aversion in a heterogeneous agent model of foreign exchange rate formation. In: Workshop on Complexity in Economics and Finance, Leiden, Netherlands, OCT 22-27, 2007. Published in: Journal of Economic Dynamics and Control, Vol.33 (No.5 Sp. Iss. SI). pp. 1106-1122. doi:10.1016/j.jedc.2008.11.008 ISSN 0165-1889.
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Official URL: http://dx.doi.org/10.1016/j.jedc.2008.11.008
Abstract
This paper provides what we believe to be the first empirical test of whether investors in the foreign exchange market are uncertainty averse. We do this using a heterogeneous agents model in which fundamentalist and chartist beliefs of the exchange rate co-exist and are allowed to be either uncertainty neutral or uncertainty averse. Uncertainty aversion is modelled using the maxmin expected utility approach. We find significant evidence of uncertainty aversion in the FX market where in particular fundamentalists are found to be largely uncertainty neutral while chartists are mainly uncertainty averse. Inclusion of uncertainty averse agents significantly improves the empirical performance of the model. (C) 2009 Elsevier B.V. All rights reserved.
Item Type: | Conference Item (Paper) | ||||
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Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Journal or Publication Title: | Journal of Economic Dynamics and Control | ||||
Publisher: | Elsevier BV | ||||
ISSN: | 0165-1889 | ||||
Official Date: | May 2009 | ||||
Dates: |
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Volume: | Vol.33 | ||||
Number: | No.5 Sp. Iss. SI | ||||
Number of Pages: | 17 | ||||
Page Range: | pp. 1106-1122 | ||||
DOI: | 10.1016/j.jedc.2008.11.008 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access | ||||
Conference Paper Type: | Paper | ||||
Title of Event: | Workshop on Complexity in Economics and Finance | ||||
Type of Event: | Conference | ||||
Location of Event: | Leiden, Netherlands | ||||
Date(s) of Event: | OCT 22-27, 2007 |
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