Exchange Rate Volatility in Emerging Economies-A Case of Pakistan

Ali, Syed Babar and Iqbal, Mir Fahad (2009): Exchange Rate Volatility in Emerging Economies-A Case of Pakistan.

Abstract

The main objective of this study is to analyze the determinants of risk-taking behavior. Consistent with models of risk return, we indicate that risk-taking behavior in the context of investment is affected by the risk of self-attitudes, and perceptions of risk and return expectations. Analysis of the determinants of financial risk with the behavior is also important for practitioners. This applies in particular because of the implementation of the markets of financial instruments directive, which urges financial institutions to be aware of the risk preferences of our customers risk and their personal risk.

One implication of our study is that objective measures of risk, such as historical volatility and return, are not able to determine the risk-taking behavior almost as well as subjective measures, the risk perceptions and self-return, especially the historical returns seems to be a poor indicator of risk-taking behavior. Moreover, we find substantial differences between the self-perceptions of risk is inferred from the interval estimates and inferred from those of the Likert scales. Our results also indicate that, in line with theoretical models, behavioral biases such as overconfidence and excessive optimism significantly affect risk behavior. Those investment advisers can try to incorporate some of these results in the consultative processes to correct the erroneous beliefs of investors. We also find evidence of the expanding scope of content in the privacy of our data. Determinants of risk-taking behavior differ not only between the two areas of content and very clear, but even in the field of investments. Measuring risk attitudes using lotteries approach is useless and therefore if we want to predict the behavior of risk in financial securities. It therefore seems that (method is used to have, for example, often in surveys of large plate-sized enterprises, such as socio-economic panel (SOEP), as well as in the banking industry) to extract positions risk customers by asking them about his conviction cannot predict the risk behavior of individuals. The same field content as a result of the extension of privacy also applies to measures of overconfidence; miscalibration only in the field of securities have had an impact on the portfolio of options, but not excessive in the preparation of a more general.

• Item Type: MPRA Paper
• Language: English
• Keywords: Volatility; Exchange rate
• Subjects: G - Financial Economics > G0 - General; G - Financial Economics > G1 - General Financial Markets

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