Predictability Of Currency Returns
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Unemployment Fluctuations And The Predictability Of Currency Returns
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Author : Federico Nucera
language : en
Publisher:
Release Date : 2017
Unemployment Fluctuations And The Predictability Of Currency Returns written by Federico Nucera and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
We investigate whether unemployment fluctuations generate predictability in the cross-section of currency excess returns. We find that currencies with lower growth in the unemployment rate appreciate while currencies with higher growth in the unemployment rate depreciate. As a result, an investment strategy that involves investing in the former and short selling of the latter produces positive and sizable excess returns. Asset pricing tests show that the predictability is not driven by exposure to traditional risk factors such as global equity risk, global foreign exchange volatility risk, and downside risk but is related instead to an idiosyncratic unemployment risk.
Predictability Of Currency Returns
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Author : Akmal Kurbanov
language : en
Publisher:
Release Date : 2010
Predictability Of Currency Returns written by Akmal Kurbanov and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
Can we make an accurate foreign exchange rate forecast if we know what is the market's best "guess" on future direction of that rate? The author attempts to answer this question by investigating the predictive ability of risk-reversals - market traded derivative contracts that measure the expected skewness of exchange rate distribution. In order to find evidence in favor or against the use of risk reversals based forecasts the paper presents analysis of recent research in selected subject. The author applies econometric methods based on previous empirical works, to quantify the relationship between EURUSD exchange rates and 1 week ahead market expectations embedded in current prices risk reversals for the period of 01/2006-04/2010. The results obtained in the sample period show that variation in weekly changes of risk reversals can explain up to 55% in variation of the same period currency returns pointing to significant positive relationship. But the outcome of out of sample predictability test, in selected specification, could not beat benchmark Random Walk model with RMSE ratio of 1.06. Despite the low predictability, the evidence on risk reversals documented in this research paper contributes to existing literature by using weekly sampling and direct market quotes of risk reversals as explanatory variables to avoid "error in estimation" problem. Moreover the period before and after the events of fall 2008 is analyzed as well as robustness checked within several sampling methods. The debate of using options market implied expectations for accuracy of forecasts is still open and it seems that there is more uncovered issues left for research.
Price Efficiency And Return Predictability In International Currency Markets
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Author : Robert Glenn Murdock
language : en
Publisher:
Release Date : 1997
Price Efficiency And Return Predictability In International Currency Markets written by Robert Glenn Murdock and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with Currency question categories.
Foreign Exchange Predictability During The Financial Crisis
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Author : Stanislav Anatolyev
language : en
Publisher:
Release Date : 2017
Foreign Exchange Predictability During The Financial Crisis written by Stanislav Anatolyev and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
In this paper, we study the effectiveness of carry trade strategies during and after the financial crisis using a flexible approach to modeling currency returns. We decompose the currency returns into multiplicative sign and absolute return components, which exhibit much greater predictability than raw returns. We allow the two components to respond to currency-specific risk factors and use the joint conditional distribution of these components to obtain forecasts of future carry trade returns. Our results suggest that the decomposition model produces higher forecast and directional accuracy than any of the competing models. We show that the forecasting gains translate into economically and statistically significant (risk-adjusted) profitability when trading individual currencies or forming currency portfolios based on the predicted returns from the decomposition model.
Predicting Currency Returns And Exchange Rate Fluctuations
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Author : Doron Avramov
language : en
Publisher:
Release Date : 2019
Predicting Currency Returns And Exchange Rate Fluctuations written by Doron Avramov and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This paper motivates a novel predictor of currency returns and exchange rate changes, the lagged foreign interest rate. This variable is the dividend-to-price analogue in currency markets and its forecasting ability is incremental to established predictors. Currency-return predictability is primarily attributable to time-series (versus cross-sectional) variation in the foreign interest rate. Then, forward premium regressions that exploit exchange rate predictability consistently generate positive slopes for both individual counties and the aggregate. From a U.S. investor's perspective, currency strategies that condition on the lagged foreign interest rate deliver significant alphas and outperform the dollar carry-trade strategy.
Mean Aversion And Return Predictability In Currency Futures
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Author : Tribhuvan Puri
language : en
Publisher:
Release Date : 2016
Mean Aversion And Return Predictability In Currency Futures written by Tribhuvan Puri and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This paper examines two stylized regularities in currency futures traded on the International Monetary Market. Short horizon returns (weekly and monthly) sampled over the period 1984-1994 exhibit significantly positive autocorrelations at moderate lags. The pattern of autocorrelations in returns is not radically affected when the sample is partitioned into two sub-periods around the 1987 market crash. The positive autocorrelation pattern implies that the increments in currency futures prices are not consistent with the random walk hypothesis. Instead, it is consistent with an investor's fads model, in which deviations in prices exhibit persistence for a long period. This process is characterized by positive autocorrelations in returns and a mean-averting behaviour in prices. A GARCH prediction model based on the fads process is explored in which the spot exchange rate serves as a proxy for the fundamental for the currency futures. Deviations in the basis (the difference of the log spot exchange rate and the log futures exchange rate) can significantly predict returns up to 36 months.
Predictability And Good Deals In Emerging And Developed Currency Markets
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Author : Richard M. Levich
language : en
Publisher:
Release Date : 2018
Predictability And Good Deals In Emerging And Developed Currency Markets written by Richard M. Levich and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
We study the predictability of forward and spot exchange rates of currencies of emerging and developed economies from 1994 to 2016 to shed light on the efficiency of currency markets and how it has evolved over this time. For the currencies of emerging economies, our analysis of rates of return on forward contracts finds some evidence of excess-predictability, especially in the earlier parts of the sample period, consistent with the view that this portion of the foreign exchange market has only become efficient in recent times. When we turn our attention to excess-returns computed from spot exchange rates and spot interest rates, however, we find much less predictability. In particular, over our full sample period, we find no evidence of excess-predictability, in contrast with the results reported by Hsu et al. (2016) but in agreement with Kuang et al. (2014). The different predictability of spot excess-returns and rates of return on forward contracts is a manifestation of the widespread violation of covered interest parity which emerged with the onset of the 2008 financial crisis.
Are Currency Returns Really Predictable
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Author : Michael D. Goldberg
language : en
Publisher:
Release Date : 2017
Are Currency Returns Really Predictable written by Michael D. Goldberg and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
This paper provides evidence suggesting that currency returns are not predictable. We find that the Bilson-Fama regression is not only unstable, but the instability is triggered by novel historical events. The novelty of the events implies that the structural change underpinning returns cannot be characterized ex ante by a probability rule. We show that allowing for unforeseeable structural change leads to considerably more evidence of a time-varying risk premium. It also reveals temporary correlations involving the market's forecast error. These correlations, like the bias of forward rate predictions, change at times and in ways that are not predictable.
Currency Risk In Global Equity Markets
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Author : Chris Yost-Bremm
language : en
Publisher:
Release Date : 2016
Currency Risk In Global Equity Markets written by Chris Yost-Bremm and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This dissertation aims to understand the impact that currency movement -- in particular U.S. dollar movement -- has in determining the returns to individual global equities. To that end, the dissertation focuses on three main goals. First, is to identify the optimal approach for measuring the degree of local/U.S. dollar currency exposure among so many disparate firms. Second, is to use this exposure to identify avenues for stock return predictability. And third, is to test whether currency exposure is systematic in the cross-section of returns -- be that cross- section a country, region, or the world.The first section focuses on the measurement of exchange rate sensitivity for global firms and associated predictability. The analysis reveals that firms that are most strongly sensitive to currency fluctuations tend to have higher stock returns over the short to medium run. In addition, the research finds that information in the forward currency rate structure can be used to improve the predictability for such firms.The second section takes a risk-based approach, and tests whether or not currency risk is a systematic risk factor worldwide. The findings suggest that currency risk is largely characterized as a regional -- as opposed to global -- consideration. However, firm fundamentals that tend to drive variation in currency exposure (such as firm size or profitability) are considerations that extend beyond regional boundaries. The section shows that because of that, worldwide systematic predictability as a result of currency exposure can still be achieved, even if the worldwide returns to that exposure are not homogeneous.
Characterizing Predictable Components In Excess Returns On Equity And Foreign Exchange Markets
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Author : Geert Bekaert
language : en
Publisher:
Release Date : 1991
Characterizing Predictable Components In Excess Returns On Equity And Foreign Exchange Markets written by Geert Bekaert and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1991 with Capital investments categories.
The paper characterizes predictable components in excess rates of returns on major equity and foreign exchange markets using lagged excess returns, dividend yields, and forward premiums as instruments. Vector autoregressive techniques demonstrate one-step-ahead predictability and provide implied long-horizon statistics. We estimate latent variable models as constrained counterparts to the VARs. The predictability of returns is related to asset pricing models by examining the volatility bounds on intertemporal marginal rates of substitution.