Behavioral Finance Meets Experimental Macroeconomics: On the Determinants of Currency Trade Decisions

A novel approach which conjoins elements of experimental macroeconomics and behavioral finance allows us to study the components of industrial firms' currency trade decisions in the controlled environment of a laboratory. We analyze how firms operate in the currency market in a deterministic tw...

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Bibliographic Details
Published inThe journal of behavioral finance Vol. 10; no. 1; pp. 44 - 54
Main Authors Kaiser, Johannes, Kube, Sebastian
Format Journal Article
LanguageEnglish
Published Philadelphia Taylor & Francis Group 01.01.2009
Taylor & Francis Ltd
Subjects
Behavioral economics
Currency
Currency trade
Economic models
Exchange rate uncertainty
Foreign exchange markets
Interest rates
Laboratory experiment
Macroeconomics
Studies
Uncertainty
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ISSN1542-7560
1542-7579
DOI10.1080/15427560902728969

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Summary:A novel approach which conjoins elements of experimental macroeconomics and behavioral finance allows us to study the components of industrial firms' currency trade decisions in the controlled environment of a laboratory. We analyze how firms operate in the currency market in a deterministic two-country model with two currencies. Consistent with presumptions of real-world behavior, subjects in our experiment tend to base their trade decisions on definite rather than on uncertain key data: Interest rates have a high impact, while technical analysis plays a minor role. We finally demonstrate how a simple decision rule that incorporates our findings might outperform the actually observed trade decisions.
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ISSN:1542-7560
1542-7579
DOI:10.1080/15427560902728969