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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| Published in | The journal of behavioral finance Vol. 10; no. 1; pp. 44 - 54 |
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| Main Authors | , |
| Format | Journal Article |
| Language | English |
| Published |
Philadelphia
Taylor & Francis Group
01.01.2009
Taylor & Francis Ltd |
| Subjects | |
| Online Access | Get full text |
| ISSN | 1542-7560 1542-7579 |
| DOI | 10.1080/15427560902728969 |
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| Abstract | 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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| AbstractList | 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. [PUBLICATION ABSTRACT] 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. |
| Author | Kube, Sebastian Kaiser, Johannes |
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| Copyright | Copyright Taylor & Francis Group, LLC 2009 Copyright Routledge Jan 2009 |
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| SubjectTerms | Behavioral economics Currency Currency trade Economic models Exchange rate uncertainty Foreign exchange markets Interest rates Laboratory experiment Macroeconomics Studies Uncertainty |
| Title | Behavioral Finance Meets Experimental Macroeconomics: On the Determinants of Currency Trade Decisions |
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