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The Foreign Exchange Market: A Random Walk with a Dragging Anchor
Abstract
This paper explores some anomalies in the foreign exchange market. It is hard to find evidence of either short-term overshooting or of longer-term reversion to an equilibrium. The forward exchange rate contains virtually no information on future spot rates. Discussions with practitioners indicate that longer-term speculation based on fundamentals is strictly limited, and survey data and other evidence suggest that expectations and speculation are based on a variety of models. The interplay between speculation based on fundamentals, and on a random walk, or Chartist, approach, influences the outcome. This endorses the prior model of J. A. Frankel and K. A. Froot. Copyright 1988 by The London School of Economics and Political Science.
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Citations
Cited by
The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis
Menkhoff, L., & Taylor, M. P. (2007) · Journal of Economic Literature · doi:10.1257/jel.45.4.936 · Cited by 78
“Early analytical studies of the foreign exchange market that allocated a role to technical analysts or chartists tended to view chartists and fundamentalists as competing factions, either in their own right as traders or as advisers to traders (Goodhart, 1988; Frankel and Froot, 1990, 1990a).”
BackgroundResultInfluentialHow puzzling is the forward premium puzzle? A meta-analysis
Zigraiova, D., Havranek, T., Irsova, Z., & Novak, J. (2021) · European Economic Review · doi:10.1016/j.euroecorev.2021.103714 · Cited by 71
FX technical trading rules can be profitable sometimes!
Zarrabi, N., Snaith, S., & Coakley, J. (2017) · International Review of Financial Analysis · doi:10.1016/j.irfa.2016.12.010 · Cited by 32
Metadata
- Authors
- Goodhart, C.
- Venue
- Economica
- Publisher
- JSTOR
- Published
- 1988-11
- Volume
- 55
- Issue
- 220
- Pages
- 437
- ISSN
- 0013-0427 (ISSN-L)
- OpenAlex
- W1985382365
- Cited by
- 255
- References
- 0
- FWCI
- 25.55
- Type
- journal article
- Language
- en
- Open access
- closed
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- Goodhart, C. (1988). The Foreign Exchange Market: A Random Walk with a Dragging Anchor. Economica. https://doi.org/10.2307/2553908
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
