Survey_RA_2003

Abstract

First, our sample extends from January 1982 to November 1998 and thus includes more than 4400 observations of daily German-US exchange rates providing reliable estimates and allowing for valuable subsample experiments. Second, because in the 1980s the US-Dollar was apparently overvalued relative to the DM when looking at fundamentals, the German-US exchange rate of this period is an ideal candidate for testing the presence of chartism. Third, we investigate whether the classification of our models might be driven by high- and low-volatility regimes, rather than chartist and fundamentalist elements. Fourth, we statistically compare the c&f regime switching model with the less complex segmented trend model. This competing but nested specification was originally suggested by Engel and Hamilton (1990) and has recently been applied by Dewachter (1997). Likelihood ratio tests, statistically significant coefficients in chartist and fundamentalist regimes, as well as the ability to capture ARCH-effects in daily exchange rates provide evidence in favour of multiagent model of foreign exchange markets.