The psychology of the foreign exchange market

Thomas Oberlechner047084406X, 9780470844069, 9780470012017

This book demystifies the foreign exchange market by focusing on the people who comprise it.  Drawing on the expertise of the very professionals whose decisions help shape the market, Thomas Oberlechner describes the highly interdependent relationship between financial decision makers and news providers, showing that the assumption that the foreign exchange market is purely economic and rational has to be replaced by a more complex market psychology.

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Table of contents :
The Psychology of the Foreign Exchange Market……Page 4
Contents……Page 8
Preface……Page 12
Acknowledgments……Page 14
Introduction……Page 18
1 From Rational Decision-Makers to a Psychology of the Foreign Exchange Market……Page 24
Traditional vs. behavioral finance: A paradigmatic shift in approaching financial markets……Page 26
Economic defense of the efficient market view……Page 30
Traders’ views of rationality in the foreign exchange market……Page 33
Toward a market psychology……Page 37
Abbreviated references……Page 41
Trading decisions: The view of traders……Page 44
From objective prices to psychological theories of decision-making……Page 50
Normative–economic and descriptive–psychological approaches……Page 53
Herding and psychological conformity……Page 57
Herding dynamics in the foreign exchange market……Page 59
Affects……Page 64
Status quo tendency……Page 67
Overconfidence……Page 70
Trading intuition: Bridging affects and cognitions……Page 74
Cognitions……Page 78
Heuristics……Page 80
Representativeness……Page 81
Availability……Page 86
Anchoring and adjustment……Page 87
Hindsight bias……Page 89
Abbreviated references……Page 90
3 Risk-Taking in Trading Decisions……Page 94
Asymmetric risk-taking……Page 95
Framing and mental accounting……Page 100
Managing trading risk: Institutional and personal strategies……Page 106
Abbreviated references……Page 110
4 Expectations in the Foreign Exchange Market……Page 112
Expectations: A market time machine……Page 115
Fundamental and technical/chartist analysis……Page 117
Psychological attitudes and market expectations……Page 131
Social dynamics, meta-expectations, and the financial news media……Page 140
Abbreviated references……Page 146
5 News and Rumors……Page 148
Characteristics of important information……Page 150
Information sources of foreign exchange traders……Page 154
Information sources of financial journalists……Page 158
Implications for collective market information-processing……Page 160
Reporting trends and interdependency……Page 162
Market rumors……Page 166
Abreviated references……Page 171
6 Personality Psychology of Traders……Page 172
The role of personality in trading……Page 173
What makes successful traders?……Page 176
Disciplined cooperation……Page 177
Tackling decisions……Page 179
Emotional stability……Page 180
Autonomous organization……Page 182
Information handling……Page 183
Market applications……Page 186
Abbreviated references……Page 187
7 Surfing the Market on Metaphors……Page 190
Main market metaphors……Page 191
The foreign exchange market as a bazaar……Page 194
The foreign exchange market as a machine……Page 195
The foreign exchange market as a living being……Page 196
The foreign exchange market as gambling……Page 198
The foreign exchange market as sports……Page 199
The foreign exchange market as war……Page 200
The foreign exchange market as an ocean……Page 201
Market metaphors are about the psychological “other”……Page 203
Market metaphors are about market predictability……Page 206
Explicit and implicit metaphors of the foreign exchange market……Page 208
Market metaphors in action……Page 211
What we can learn from market metaphors……Page 215
Abbreviated references……Page 216
8 The Foreign Exchange Market—A Psychological Construct……Page 218
The market as a construct and illusion……Page 221
Market constructs change……Page 223
Abbreviated references……Page 227
Function and scope of the market……Page 230
Instruments……Page 234
Trading……Page 235
Dealing room structure……Page 236
Commercial and investment banks……Page 239
Central banks……Page 240
Brokers……Page 241
Investment companies, pension funds, and hedge funds……Page 242
Corporations and multinational companies……Page 243
Individuals……Page 244
Abbreviated references……Page 245
Appendix: The European and the North American Survey……Page 248
Abbreviated references……Page 250
References……Page 252
Index……Page 272