Abstract
This paper examines the pattern of autocorrelation of exchange rates in the EU, ASEAN, and NAFTA. We find no feedback trading within blocks among developed financial markets’ currencies, but it exists for less developed financial markets. Across blocks, no feedback trading is found. ASEAN currencies are an exception on both counts. When present, feedback trading is a destabilizing factor, and it takes place during rising volatility. Finally, the prevalence of negative feedback trading suggests that, in spite of the recent addition of new players into the market, such as mutual funds and hedge funds, the foreign exchange market is mainly influenced by informed players and/or central banks which intervene to protect their currencies.
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