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Hedge Fund Herding in the Currency Market
Stockholm University, Faculty of Social Sciences, Stockholm Business School.ORCID-id: 0000-0002-1014-9592
2019 (engelsk)Annet (Annet vitenskapelig)
Resurstyp
Text
Abstract [en]

In this paper, I study the patterns of hedge fund herding in currency future contracts and find evidence that hedge funds herd. High-interest (low-interest) currencies have higher buy-side (sell-side) herding consistent with carry trade positions. I then propose a strategy herding measure that I use to track hedge fund herding in the carry trade strategy. I find that hedge fund carry trade strategy herding positively predicts future returns, a result that is robust to a host of other measures of activity. I find no that hedge fund herding is destabilizing, and investors can improve performance by following hedge fund herding behavior in the carry trade.

sted, utgiver, år, sider
2019.
Emneord [en]
herding, hedge funds, carry trade, foreign exchange, Business Administration, Företagsekonomi
HSV kategori
Identifikatorer
URN: urn:nbn:se:hj:diva-51128OAI: oai:DiVA.org:hj-51128DiVA, id: diva2:1506530
Tilgjengelig fra: 2020-12-03 Laget: 2020-12-03 Sist oppdatert: 2020-12-03bibliografisk kontrollert
Inngår i avhandling
1. Essays on Investor Behavior and Trading Strategies in International Financial Markets
Åpne denne publikasjonen i ny fane eller vindu >>Essays on Investor Behavior and Trading Strategies in International Financial Markets
2019 (engelsk)Doktoravhandling, med artikler (Annet vitenskapelig)
Abstract [en]

This dissertation contains four articles that in different ways inform on investor behavior in international financial markets, their impact on the underlying market, and the trading strategies that they pursue. Article I studies how hedge funds herd in currency future contracts and how it is affecting the underlying market. The results indicate that hedge funds herd, and that they herd in a pattern that is consistent with them following the carry trade strategy. Hedge fund herding has an impact on the underlying market, in the direction of the herd, and the results give no indication that their herding in destabilizing. Article II examines if limits to arbitrage can help explain the returns to technical analysis strategies in the foreign exchange market. The findings show that returns to technical analysis strategies are higher when limits to arbitrage are more severe, supporting the argument that profit opportunities can persist as arbitrage activity is costly and risky. However, investor sentiment seem to be unrelated to technical analysis returns. The main takeaway is that limits to arbitrage are an important determinant of technical analysis profitability. Article III investigates whether the trading activity of speculators is beneficial for the speed of information diffusion in the foreign exchange market. The findings show that predictive ability of the equity market on foreign exchange strategies dissipates when speculator activity is high. However, the same results are not found for the commodity markets ability to predict foreign exchange strategies. Overall, the results indicate that speculators play a vital role for informational efficiency in the foreign exchange market. Article IV examines the impact of investor attention on stock and foreign exchange market volatility in emerging economies using a newly constructed innovative attention proxies that capture the full spectrum of the dynamics of the information processing stages. The results show that investor attention significantly effects emerging stock market volatility, but not FX market volatility.

sted, utgiver, år, opplag, sider
Stockholm: Stockholm Business School, Stockholm University, 2019
Emneord
foreign exchange, speculators, hedge funds, investor behavior, trading strategies, information, market efficiency, Business Administration, Företagsekonomi
HSV kategori
Identifikatorer
urn:nbn:se:hj:diva-51130 (URN)978-91-7797-723-0 (ISBN)978-91-7797-724-7 (ISBN)
Disputas
2019-09-10, Gröjersalen, hus 3, Kräftriket, Roslagsvägen 101, Stockholm, 13:00 (engelsk)
Opponent
Veileder
Tilgjengelig fra: 2020-12-03 Laget: 2020-12-03 Sist oppdatert: 2020-12-03bibliografisk kontrollert

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