Shamim Ahmed
Can currency-based risk factors help forecast exchange rates?
Ahmed, Shamim; Liu, Xiaoquan; Valente, Giorgio
Authors
Xiaoquan Liu
Giorgio Valente
Abstract
This paper examines time-series predictability of bilateral exchange rates from linear factor models that utilize unconditional and conditional expectations of three currency-based risk factors. Exploiting a comprehensive set of statistical criteria, we find that all versions of the linear factor models largely fail to outperform the benchmark of random walk with drift model in the out-of-sample forecasting of monthly exchange rate returns. This holds true for individual currencies and currency portfolios formed on forward discounts. We also show that the information embedded in the currency-based risk factors does not generate systematic economic value to investors.
Citation
Ahmed, S., Liu, X., & Valente, G. (in press). Can currency-based risk factors help forecast exchange rates?. International Journal of Forecasting, 32(1), https://doi.org/10.1016/j.ijforecast.2015.01.010
Journal Article Type | Article |
---|---|
Acceptance Date | Aug 1, 2015 |
Online Publication Date | Sep 21, 2015 |
Deposit Date | Sep 19, 2016 |
Publicly Available Date | Sep 19, 2016 |
Journal | International Journal of Forecasting |
Print ISSN | 0169-2070 |
Electronic ISSN | 0169-2070 |
Publisher | Elsevier |
Peer Reviewed | Peer Reviewed |
Volume | 32 |
Issue | 1 |
DOI | https://doi.org/10.1016/j.ijforecast.2015.01.010 |
Keywords | Exchange rates; Out-of-sample predictability; Economic value; Time series; Econometric models |
Public URL | https://nottingham-repository.worktribe.com/output/760778 |
Publisher URL | http://www.sciencedirect.com/science/article/pii/S016920701500062X |
Contract Date | Sep 19, 2016 |
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Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0
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