How do UK-based foreign exchange dealers think their market operates?

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)289-306
Journal / PublicationInternational Journal of Finance and Economics
Volume9
Issue number4
StatePublished - Oct 2004
Externally publishedYes

Abstract

This paper summarizes 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 observable 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, non-observable fundamental factors are thought to dominate short horizon changes in exchange rates, but observable fundamentals are deemed important over much shorter horizons than 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. Copyright © 2004 John Wiley & Sons, Ltd.

Research Area(s)

  • Foreign exchange, Microstructure, Survey, Technical analysis

Citation Format(s)

How do UK-based foreign exchange dealers think their market operates? / Cheung, Yin-Wong; Chinn, Menzie D.; Marsh, Ian W.

In: International Journal of Finance and Economics, Vol. 9, No. 4, 10.2004, p. 289-306.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review