THE NOISE TRADING APPROACH - QUESTIONNAIRE EVIDENCE FROM FOREIGN-EXCHANGE

This article examines three basic assumptions of the noise trading app roach via a mailed questionnaire sent to professional foreign exchange market participants in Germany. Two groups, characterized by their us e of different information,,can be identified: 'rational arbitrageurs' relying primarily on fundamental analysis and 'not-fully-rational noi se traders' preferring other forms of analysis. The questionnaire furt her reveals the 'short horizons' and 'sentiments' assumed by the noise trading approach but cannot exclusively relate these to the respectiv e groups. This conforms with the interpretation that rational particip ants use non-fundamental analyses to exploit less-rational noise trade rs. (C) 1998 Elsevier Science Ltd. All rights reserved.