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The paper deals with the analysis of market sentiments in exchange rateswhich are of great interest to trading individuals and institutional investors.For example, an institutional investor or a trading individual makes better investments andminimizes losses when equipped with an understanding of market sentiments inweekly or monthly exchange returns. In the approach suggested here, a typicalmarket sentiment is defined on the basis of the certain function of the meanand the standard error of the logarithm of the ratio of successive dailyexchange rates. Based on this surmise, the market sentiments are classifiedinto various states, whereby states are defined according to the perceptions ofthe market player. A multinomial probability model is built to capture the uncertainties in marketsentiments. Two asymptotically distribution-free tests, namely the chi-square and the likelihood ratio test ofgoodness of fit for the hypothesis of the symmetry in market sentiments aresuggested. Two different measures of market sentiments are proposed. Theapproach advocated here will be of interest to researchers, exchange ratetraders and financial analysts. As an application of the proposed line ofapproach, we analyze weekly market sentiments that govern exchange rates of themajor global currencies—EUR, GBP, SDR, YEN,ZAR, USD, data from 2001-2012. Some interesting conclusions are revealed basedon the data analysis.

KEYWORDS

Chi-Square Tests; Exchange Rates; Market Sentiments; Weekly States

Cite this paper

K. Rao and A. Ramachandran -Exchange Rate Market Sentiment Analysis of Major Global Currencies,- Open Journal of Statistics, Vol. 4 No. 1, 2014, pp. 49-69. doi: 10.4236-ojs.2014.41006.





Autor: K. S. Madhava Rao, Anjana Ramachandran

Fuente: http://www.scirp.org/



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