استراتژی معکوس و واکنش شدید در بازار ارز خارجی

This paper investigates patterns to assist investors to forecast future exchange rate movements. We test for overreaction and underreaction examining exchange rate changes following excess 1-day fluctuations for currencies in two emerging (Turkey, Brazil) and two developed (US, UK) countries. Using euro as the base currency, we identify that the Turkish lira, the Brazilian real and the US dollar overreact, while the British pound underreacts. In the case of British pound, asymmetric responses and lack of volatility are two crucial factors to reject overreaction. Also, we find that contrarian strategy can be used in all currency markets for profitable investments.

Overreaction and underreaction phenomena have been widely studied during the last decade. However, most of the studies focus on stock markets. Hence, it is of great interest to examine whether these phenomena can be applied in currency markets where large fluctuations occur mainly when national economic cycles are out of synchronisation. Increasing synchronisation and convergence during the last years, made these fluctuations to appear rarely. Hence, in this paper we study not only extreme movements for developed markets (EU, US, UK), but also for two emerging markets which during the last decade experienced at least one blow-out. Particularly, we study the Turkish lira, i.e. TR (collapse in 2001) and the Brazilian real, i.e. BRL (collapse in 1999). In this study, the exchange rates are defined as the number of foreign currency units per euros. In an overreaction event the price level is way beyond where it should be. A key feature of the overreaction is that this phenomenon conveys a contrarian or a momentum strategy (see Nam et al., 2001). The response in the price of a currency to these phenomena is of great interest for fund managers who during the last years undertake diverse approaches to managing assets. Indeed, hedge funds are growing in popularity and attract a large portion of investor's portfolios, and as a consequence the contrarian style of managing funds is becoming more and more prevalent. The objective of this study is to determine whether: (i) exchange rates respond properly to information, giving rise to overreaction hypothesis; and (ii) a contrarian strategy can be used in currency markets. Studying extreme 1-day fluctuations, our findings provide sufficient evidence that all currencies except for the British pound, overreact. Moreover, we find that contrarian investment strategy holds for all exchange rates. This paper contributes to the existing literature in two ways: (i) sheds more light to exchange rate fluctuations, studying overreaction hypothesis which so far has not been used widely in the academic society; and (ii) investigates that contrarian strategy can be used very profitable from investors to foreign exchange markets. The structure of the paper is organized as follows: Section 2 briefly presents the literature review. Section 3 presents the data. Section 4 analyzes methodological issues. The empirical results are reported in Section 5. Section 6 contains the concluding remarks.

This paper presents new insights in forecasting currency movements. Our tests are based on extreme 1-day fluctuations in exchange rate changes. Using the euro as the base currency, we observe overreaction for US dollar, Brazilian real and Turkish lira. On the other hand, we identify that British pound underreacts. This may be due to lack of volatility, asymmetric responses and/or strong directionality. Indeed, in the last years the GBP seems to be in an upward trend against the euro. This directionality favours underreaction instead of overreaction. Also, using a filter size we identify that contrarian strategy is well suited for all exchange rates. For at least 2 days after the event day, currencies follow a different movement (the return has different size). Hence, investors can take advantage from this strategy, to sell past winners and buys worst performing currencies.