Consider the Role of Investor Psychology and Bandwagon Effects on How

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The Answer is Neither PPP nor the International Fisher Effect have proven to be good at explaining short-term movements in exchange rates. One reason for their poor explanatory power may be the impact of investor psychology on short-run exchange movements. Studies show that expectations about exchange rates tend to become self-fulfilling prophecies.
A bandwagon effect occurs when investors in increasing numbers start following the lead of someone who may be pushing the value of a currency up or down due to psychological reasons. As a bandwagon effect builds up, the expectations of investors become a self-fulfilling prophecy, and the market moves in the way the investors expected.

Consider the Role of Investor Psychology and Bandwagon Effects on How

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Consider the Role of Investor Psychology and Bandwagon Effects on How

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