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