Bandwagon effects and run patterns in exchange rates |
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| Affiliation: | 1. Department of Finance, School of Business, East China University of Science and Technology, Shanghai 200237, China;2. Research Center for Econophysics, East China University of Science and Technology, Shanghai 200237, China;3. Institute of Physics, Academia Sinica, Nankang, Taipei 11529, Taiwan;4. Department of Mathematics, School of Science, East China University of Science and Technology, Shanghai 200237, China;1. Environmental Health Sciences Laboratory, Graduate School of Advanced Science and Engineering, Hiroshima University, Hiroshima, Japan;2. Department of Community-Based Medical Systems, Graduate School of Biomedical and Health Sciences, Hiroshima University, Hiroshima, Japan;3. Kitahiroshimacho Yahata Clinic, Hiroshima, Japan;4. Department of Medicine for Integrated Approach to Social Inclusion, Graduate School of Biomedical and Health Sciences, Hiroshima University, Hiroshima, Japan;5. Division of Health Policy and Management, Center for Community Medicine, Jichi Medical University, Tochigi, Japan;1. Key Laboratory of Water Cycle and Related Land Surface Processes, Institute of Geographic Sciences and Natural Resources Research, Chinese Academy of Sciences, Beijing 100101, China;2. University of Chinese Academy of Sciences, Beijing 101407, China;3. Department of Civil Engineering, Indian Institute of Technology Bombay, Powai, Mumbai 400076, India;4. Faculty of Economics, University of Navarra, Pamplona, Spain;1. ICMA Centre, Henley Business School, University of Reading, UK;2. Management School, University of Sheffield, Sheffield, United Kingdom;1. School of Economics, Xiamen University, Xiamen 361005, China;2. Department of Earth and Environmental Studies, Montclair State University, Montclair, NJ 07043, USA;1. Department of Radiation Oncology, H. Lee Moffitt Cancer Center and Research Institute, Tampa, Florida;2. Department of Gynecologic Oncology, H. Lee Moffitt Cancer Center and Research Institute, Tampa, Florida;3. Department of Bioinformatics, H. Lee Moffitt Cancer Center and Research Institute, Tampa, Florida |
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| Abstract: | I analyze the monthly exchange rates of the US dollar against the pound sterling, the Japanese yen, and the Swiss franc. All three exchange rates show bandwagon patterns, changes in one direction tend to be followed by changes in the same direction. This regularity points towards the importance of momentum traders on foreign exchange markets. A recent experimental analysis suggests the following hypothesis regarding the dynamics of bandwagon effects: if there is a repetition of similar occurrences many agents expect this run to continue but reduce the perceived chances of further repetitions when they actually occur. For exchange rates this implies that a continuation of a change in one direction should become weaker if an exchange rate has shown repeated changes in the same direction in the immediate past. This conjecture is supported by the findings of this study. |
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