The noise trading approach - questionnaire evidence from foreign exchange

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