Charts, Noise and Fundamentals: A Study of the London Foreign Exchange Market

Recent research in financial economics has concentrated on the role of non-economic, or non-fundamentalist, speculators in asset markets. This paper presents some empirical evidence concerning the nature and perceived importance of a major form of non-fundamentalist analysis, chartism, in the London foreign exchange market. It analyzes the results of a questionnaire survey on chartism conducted among chief foreign exchange dealers in the London market and data on a panel of chartists' one-week and four-week-ahead exchange rate predictions. The analysis suggests that a majority of chief dealers use at least some chartist input into their trading decisions, especially at the shorter time horizo.