Empirical exchange rate models and currency risk: some evidence from density forecasts
Sarno, Lucio and Valente, Giorgio (2004) Empirical exchange rate models and currency risk: some evidence from density forecasts. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.04-).
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Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...
A large literature in exchange rate economics has investigated the forecasting performance of empirical exchange rate models using conventional point forecast accuracy criteria. However, in the context of managing exchange rate risk, interest centers on more than just point forecasts. This paper provides a formal evaluation of recent exchange rate models based on the term structure of forward exchange rates, which previous research has shown to be satisfactory in point forecasting, in terms of density forecasting performance. The economic value of the exchange rate density forecasts is investigated in the context of an application to a simple risk management exercise.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School
|Library of Congress Subject Headings (LCSH):||Foreign exchange rates, Economic forecasting, Nonlinear theories, Risk management|
|Series Name:||Working papers (Warwick Business School. Financial Econometrics Research Centre)|
|Publisher:||Warwick Business School, Financial Econometrics Research Centre|
|Place of Publication:||Coventry|
|Official Date:||August 2004|
|Number of Pages:||34|
|Institution:||University of Warwick|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
First version, January 2004; this revised version, August 2004
Ang, A. and Bekaert, G. 1998. Regime Switches in Interest Rates. National Bureau of Economic Research Working Paper No. 6508.
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