This paper investigates whether information from foreign yield curves helps forecast domestic yieldcurves out-of-sample. A nested methodology to forecast yield curves in domestic and internationalsettings is applied on three major countries (the US, Germany and the UK). This novel methodologyis...

How is it possible that exchange rates move in the long run towards fundamentals, whileprofessionals form consistently irrational exchange rate expectations? We look at this puzzle from adifferent perspective by analyzing investor sentiment in the US-dollar market. First, long-horizonregressions...

This paper makes three contributions to our understanding of the price discovery process in currencymarkets. First, it provides evidence that this process cannot be the familiar one based on adverse selectionand customer spreads, since such spreads are inversely related to a trade’s likely...

This study examines profits and speculation in the USD/EUR trading of a bank in Germanyover a four-month period. Dealing activity at the bank generates profits but speculation doesnot seem to contribute to this. We find that speculative positions fail to become profitablewithin a 30-minutes'...

This study shows that order flow in a foreign exchange market only has permanent price impact if itcomes from certain regions. These regions are – as predicted by the local information hypothesis –centers of political and financial decision making. It is revealing that orders from other...

Early warning systems (EWSs) are subject to restrictions that apply to exchangerates in general: fundamentals matter but their influence is small and unstable. Despitethis limitation four major lessons emerge: First, EWSs have robust forecastingpower and thus help policy-makers to prevent...

This paper extends earlier studies on exchange rate expectations' formation by using newdata and adding information about forecasters' reliance on fundamental analysis for the firsttime. We replicate the conventional result of non rational expectations. Moreover, biases inexpectations are...

We study the relationship between foreign exchange trading activity and volatility on theUSD/EUR foreign exchange market on the basis of a unique data set around the events of09/11/2001. We find that volatility and bid-ask spreads are by far larger at that time, but theshock is not persistent....

This paper analyzes the behaviour and motivation of fund managers in foreign exchangemarkets reflected in questionnaire evidence. We find that fund managers andFX dealers differ significantly. Fund managers rely more on fundamentals, basicallydue to their longer forecasting horizons, and reject...

Today´s derivate pricing base on stochastic models developed in the 70´s. These models base on some unrealistic assumptions. The system WARRANT PRO 1 presented here combines the software agent PISA (Partially Intelligent Software Agent) and the neurosimulator FAUN (Fast Approximation with...