In order to study the expectation formation of financial institutions in the foreign exchange market we develop and apply a recursive selection and estimation algorithm to a dataset of surveyed foreign exchange market expectations. Responses are classified into two groups and forecasting models...

We propose a theoretical framework of exchange rate behavior where investors focus on a subset of economic fundamentals. We find that any adjustment in the set of predictors used by investors leads to changes in the relation between the exchange rate and fundamentals. We test the validity of...

This paper introduces a Heterogeneous Agent Model (HAM) for foreign exchange fund managers, and estimates it on currency trader indices. Fund managers dynamically allocate capital conditional on recent performance to a value strategy, a momentum strategy, and a carry strategy. Estimation results...