2.  What is investigated? Perceived importance of chartist and fundamentalist analysis among FOREX traders and financial journalists  Where? FOREX markets in London, Frankfurt, Vienna, Zurich  Why? More realistic alternative to the efficient market approach Theories based only on fundamentals cannot explain short term exchange rate movements shift to theories considering the interaction of chartist and fundamentalist expectations

3.  Technical (chartist) analysis;  Fundamental analysis;  Arbitrageurs;  Noise traders. What is the link between them?

4.  Several trading locations → comparison possible;  Financial journalists firstly considered (why?);  Typology of foreign exchange traders based on their forecasting styles established.

5. 1) Questionnaires  1996;  Commercial and investment banks, central banks, financial news providers;  Sample – 321 traders & 59 financial journalists. Content of the questionaire:  Backgroud information – age, gender, proffesional rank, type of institution trader works for, location where the institution is, years of experience;  Importance trader attaches to chartist versus technical analysis on a series of forecasting horizons ranging from intraday to longer than 1 year.

6. 2) Interviews  confidential & semi-structured;  sample – 42 traders and 16 financial journalists. Purpose? To contextualize the quantitative findings from the questionnaires.

7.  7 forecasting horizons from intraday to longer than 1 year;  multivariate two-factorial ANOVA procedure 2 groups (factors) = traders and financial journalists Independent variables – backgroud information Dependent variable – importance of chartism vs. fundamentalism on the scale from 0 (pure chartism) to 10 (pure fundamentalism) *ANOVA not only helps us to study the effect of two factors but also gives information about their dependence or independence in the same experiment.

8. The importance of feelings versus rationality in the foreign exchange market?  1=only feelings & 7=only rationality;  in general the foreign exchange market & in their own decisions in the foreign exchange market.

9. Rater type & horizon significant Traders more chartist than journalists Longer horizon → more fundamental approach Question: importance of chartism vs. fundamentalism

10. Comparison in time Chartism more important on all trading horizons!

11. Connection to background variables No significant differences for:  Age  Trader type  Position Significant differences exist for:  Trading limit Limit “up to US $50 million” - more chartist than limit “more than US $51 million”  Trading site location Holds only for shorter forecasting horizons up to 3 months Larger trading centers (London, Frankfurt) → more fundamental approach than smaller trading centers (Vienna, Zurich)

12. Generally  feelings slightly more influential in both groups  groups don’t differ significantly Own decisions  highly significantly different views of groups  Traders – feelings more important  Journalists – rationality more important

13. How? M athematical means of the individual ratings given on the various forecasting horizons. Disadvantage Loosing a lot of information gathered Mostly mixed strategies

14.  Determined by hierarchical cluster analysis Ward’s clustering method and squared Euclidean distance  Differentiates between traders who arrive at same mean value of ratings by the use of very different forecasting profiles across the seven forecasting horizons  4 optimal clusters: 1.Chartist, ascending (43%) 2.Fundamental, ascending (17%) 3.Constant chartist (16%) 4.Inverse middle (23%)

16. Correlation to background variables Forecasting styles correlate only to trading location: → ‘fundamental, ascending’ traders are over- represented in the London/Frankfurt group → ‘chartist, ascending’ traders are over-represented in the Zurich/Vienna group

17.  chartists & fundamentalists not mutually exclusive groups;  chartism important forecasting tool for majority of FOREX market participants;  chartism more important on shorter forecasting horizons;  Traders can be clustered in 4 forecasting profiles.

18.  Location matters! → expectations and forecasts in the global market are not formed in a homogenous way  Frankfurt and London - significantly more fundamental overall forecasting approach than Vienna and Zurich Rationale behind? Location’s market size, currencies chiefly traded, traders’ training.

19.  financial reporters - more fundamental vs. traders, on all forecasting horizons  financial journalists consider rationality more important than feelings in their reporting decisions Rationale behind? Difference in task - need to explain to trading participants reasons for market movements.

20. “Without the chart system you can’t deal anymore because everybody uses it’” “ If a hundred people believe in something, these hundred people will move the market. So they confirm the chart”

21. THANK YOU FOR ATTENTION