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Pension Fund Managers and the Structure of the Foreign Exchange Market

Author

Listed:
  • Hernando Vargas
  • Yanneth Rocio Betancourt

Abstract

The effects of the Pension Fund Managers (PFM) behavior on the Foreign Exchange (FX) market may be important, given the size of their portfolio and their possible market power. Some authors argue that when big investors like PFM trade large volumes in the FX market, they may infl uence other agents’ decisions, increasing the impact on the exchange rate. However, when PFM have market power, they will take into account their infl uence on the exchange rate and will moderate their trading volume. This paper seeks to demonstrate the existence of this “mitigating effect” under different theoretical FX market structures.

Suggested Citation

  • Hernando Vargas & Yanneth Rocio Betancourt, 2007. "Pension Fund Managers and the Structure of the Foreign Exchange Market," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 25(54), pages 122-155, June.
    • Handle: RePEc:bdr:ensayo:v:25:y:2007:i:54:p:122-155
    DOI: 10.32468/Espe.5404
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    References listed on IDEAS

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    1. Frankel, Jeffrey A & Froot, Kenneth A, 1987. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," American Economic Review, American Economic Association, vol. 77(1), pages 133-153, March.
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    3. Lui, Yu-Hon & Mole, David, 1998. "The use of fundamental and technical analyses by foreign exchange dealers: Hong Kong evidence," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 535-545, June.
    4. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 304-314, June.
    5. Cheung, Yin-Wong & Wong, Clement Yuk-Pang, 2000. "A survey of market practitioners' views on exchange rate dynamics," Journal of International Economics, Elsevier, vol. 51(2), pages 401-419, August.
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    More about this item

    Keywords

    pension funds; foreign exchange market; market power;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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