Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/195688 
Authors: 
Year of Publication: 
2018
Citation: 
[Journal:] International Journal of Financial Studies [ISSN:] 2227-7072 [Volume:] 6 [Issue:] 1 [Publisher:] MDPI [Place:] Basel [Year:] 2018 [Pages:] 1-13
Publisher: 
MDPI, Basel
Abstract: 
Does speculation facilitate price discovery or instability? If it is price discovery, it is beneficial and should be encouraged; if it is instability, welfare is enhanced by its reduction. This paper seeks to distinguish between these two characteristics by analysing those times when speculation in the foreign exchange market is most extreme. A series of event studies are conducted on the extremes of speculative sentiment and speculative activity. If speculation is noise, extreme sentiment and extreme positions should lead to overshooting and increase risk of subsequent reversals. The finding that speculative extremes do not provide information about subsequent returns implies that speculation is part of the process of price discovery and that efforts to reduce it would reduce the informational efficiency of financial markets.
Subjects: 
foreign exchange
speculation
event-study
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article

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