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Economic Fundamentals Over Long and Short Horizons

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  • Ali TFAILY

    (Bucharest University of Economic Studies)

Abstract

In this paper, the idea that economic fundamentals should hold over all horizons is put to the test by focusing on the dynamics of the foreign exchange market. An empirical proof that the foreign exchange market follows economic fundamentals over long horizons but not over short horizons is presented. This can be generalized to other markets such as stocks or commodities, which are mostly driven by speculations and investors’ expectations over short horizons but follow economic fundamentals over long horizons. This is especially true for highly volatile assets where the high volatility masks the economic fundamentals over the short run.

Suggested Citation

  • Ali TFAILY, 2018. "Economic Fundamentals Over Long and Short Horizons," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 19(2), pages 167-174, May.
    • Handle: RePEc:rom:rmcimn:v:19:y:2018:i:2:p:167-174
    DOI: 10.24818/RMCI.2018.2.167
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    References listed on IDEAS

    as
    1. Gourinchas, P O & Tornell, A, 2004. "Exchange rate puzzles and distorted beliefs," Department of Economics, Working Paper Series qt63m3f61w, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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    4. Menzie D. Chinn & Guy Meredith, 2004. "Monetary Policy and Long-Horizon Uncovered Interest Parity," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 409-430, November.
    5. 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.
    6. Frenkel, Jacob A & Levich, Richard M, 1975. "Covered Interest Arbitrage: Unexploited Profits?," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 325-338, April.
    7. 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.
    8. Gourinchas, Pierre-Olivier & Tornell, Aaron, 2004. "Exchange rate puzzles and distorted beliefs," Journal of International Economics, Elsevier, vol. 64(2), pages 303-333, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Foreign Exchange Market; Exchange Rate; Uncovered Interest Rate Parity; Covered Interest Rate Parity; Economic Fundamentals.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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