The investigation of hot-hand fallacy and gambler’s fallacy in foreign exchange markets

"The investigation of hot-hand fallacy and gambler’s fallacy in foreign exchange markets" using high frequency foreign exchange market data adopted from the Electronic Brokerage Service (EBS) platform, we explore whether a sequence of continuous trades and reversal trades bring judgment errors associated with processing information from random sequences for institutional investors. We find that, in keeping with hot-hand fallacy, longer spans lead to greater expectations for a continuation. Moreover, the shorter span of a sequence represents a departure from the reasoning sequences of a random walk, following the gambler’s fallacy.