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Article Dans Une Revue Finance Année : 2019

Endogenous crashes in the foreign exchange market: a theoretical model

Louis Raffestin
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Résumé

We present a model of the foreign exchange market in which cash-constrained carry traders trade with short-sighted, boundedly rational chartists. This simple market structure provides a theoretical basis for the fact that the currencies of high interest rate countries tend to crash, sometimes without a fundamental trigger. Crash risk comes from a perverse interaction between carry traders and chartists, and is maximized when both investors are very active in the market.
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Dates et versions

hal-02321179 , version 1 (20-10-2019)

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  • HAL Id : hal-02321179 , version 1

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Louis Raffestin. Endogenous crashes in the foreign exchange market: a theoretical model. Finance, 2019, 40 (1), pp.7-51. ⟨hal-02321179⟩
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