Abstract:
Exchange rate expectations can affect exchange rate movements and influence the foreign exchange market. As individual expectations are inherently heterogeneous, the amount of Heterogeneity in exchange rate expectations’ could play a fundamental role in determining its volatility.
This thesis takes as its primary reference the 2009 paper by Menkhoff, Rebitzky, and Schröder “Heterogeneity in exchange rate expectations: Evidence on the chartist–fundamentalist approach” and aims at replicating and innovating their econometric analysis. This time series analysis uses newly available, more recent data about individual exchange rate expectations. The purpose of this analysis is to study the main hypotheses in the literature and to explore the robustness and generality of the original results.
A Vector Error Correction Model is proposed and estimated to identify the long-run relationship between heterogeneity and its determinants. The Chartists & Fundamentalists hypothesis, the Noise Trading hypothesis, and the Role of News find supporting evidence in the results.
