A survey of market practitioners' views on exchange rate dynamics

We report some findings from a survey of practitioners in the interbank foreign exchange markets in Hong Kong, Tokyo, and Singapore. The respondents contend that liquidity and market uncertainty are two important reasons for deviating from the conventional interbank bid-ask spread. A strong customer base is perceived as a source of competitive advantage for large participants. Most respondents agree that non-fundamental factors have pervasive impacts on short-run exchange rates. Speculation is believed to increase volatility but also improve market liquidity and efficiency. Despite their claim that intervention exacerbates volatility, more than one-half of the respondents suggest official intervention helps restore equilibrium.

[1]  L. J. Savage,et al.  The Utility Analysis of Choices Involving Risk , 1948, Journal of Political Economy.

[2]  F. Lutz,et al.  The case for flexible exchange rates , 1954 .

[3]  L. Goldberg,et al.  Strategic Trading in a Two-Sided Foreign Exchange Auction , 1995 .

[4]  Takatoshi Ito.  Foreign Exchange Rate Expectations: Micro Survey Data , 1988 .

[5]  Bettina Peiers,et al.  Informed Traders, Intervention and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market , 1997 .

[6]  R. MacDonald.  The economics of exchange rates , 1991 .

[7]  N. Mark,et al.  Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability , 1995 .

[8]  Kathryn M. E. Dominguez,et al.  Central bank intervention and exchange rate volatility , 1998 .

[9]  Mark P. Taylor,et al.  The use of technical analysis in the foreign exchange market , 1992 .

[10]  M. Chinn,et al.  Macroeconomic Implications of the Beliefs and Behavior of Foreign Exchange Traders , 1999 .

[11]  Tim Bollerslev,et al.  Trading Patterns and Prices in the Interbank Foreign Exchange Market , 1993 .

[12]  Dean Taylor.  Official Intervention in the Foreign Exchange Market, or, Bet Against the Central Bank , 1982, Journal of Political Economy.

[13]  Takatoshi Ito,et al.  Is There Private Information in the FX Market? The Tokyo Experiment , 1997 .

[14]  Richard K. Lyons,et al.  A simultaneous trade model of the foreign exchange hot potato , 1997 .

[15]  Catherine Bonser-Neal,et al.  Central bank intervention and the volatility of foreign exchange rates: evidence from the options market , 1996 .

[16]  Takatoshi Ito,et al.  One Day in June, 1994: A Study of the Working of Reuters 2000-2 Electronic Foreign Exchange Trading System , 1995 .

[17]  E. Elton,et al.  International capital markets , 1976 .

[18]  J. Frankel,et al.  The Microstructure of Foreign Exchange Markets , 1997 .

[19]  C. Wong.  Foreign Exchange Traders in Hong Kong, Tokyo, and Singapore: A Survey Study , 1999 .

[20]  Paul R. Milgrom,et al.  Bid, ask and transaction prices in a specialist market with heterogeneously informed traders , 1985 .

[21]  Tim Bollerslev,et al.  Bid—ask spreads and volatility in the foreign exchange market: An empirical analysis , 1994 .

[22]  A. Rose,et al.  A Survey of Empirical Research on Nominal Exchange Rates , 1994 .

[23]  R. Mckinnon.  Floating foreign exchange rates 1973–1974: The emperor's new clothes , 1976 .

[24]  Hali J. Edison.  The Effectiveness of Central-Bank Intervention: A Survey of the Literature After 1982 , 1993 .

[25]  H. Varian.  Divergence of Opinion in Complete Markets: A Note , 1985 .

[26]  Donald B. Keim.  Trading patterns, bid-ask spreads, and estimated security returns: The case of common stocks at calendar turning points , 1989 .

[27]  Walter L. Smith.  Probability and Statistics , 1959, Nature.

[28]  Kenneth A. Froot,et al.  Chartists, Fundamentalists and the Demand for Dollars , 1991 .

[29]  Mark P. Taylor,et al.  Private behaviour and government policy in interdependent economies , 1993 .

[30]  Kenneth E. Boulding,et al.  Essays in Positive Economics. , 1954 .

[31]  G. Kaminsky,et al.  Does Foreign Exchange Intervention Signal Future Monetary Policy? , 1993 .

[32]  L. Summers,et al.  Noise Trader Risk in Financial Markets , 1990, Journal of Political Economy.

[33]  Hendrik Bessembinder,et al.  Bid-ask spreads in the interbank foreign exchange markets☆ , 1994 .

[34]  Pamela L. Alreck,et al.  The Survey Research Handbook , 1984 .

[35]  Menzie David Chinn,et al.  Banking on currency forecasts: How predictable is change in money? , 1995 .

[36]  Charles Goodhart,et al.  The Foreign Exchange Market: A Random Walk with a Dragging Anchor , 1988 .

[37]  P. Jurgensen.  Report of the Working Group on Exchange Market Intervention , 1983 .

[38]  Kenneth S. Rogoff,et al.  Exchange rate models of the seventies. Do they fit out of sample , 1983 .

[39]  Andrew K. Rose,et al.  Empirical research on nominal exchange rates , 1995 .

[40]  R. Lyons,et al.  Tests of Microstructural Hypotheses in the Foreign Exchange Market , 1993 .