The Library
An economic evaluation of empirical exchange rate models
Tools
Della Corte, Pasquale, Sarno, Lucio and Tsiakas, Ilias (2009) An economic evaluation of empirical exchange rate models. Review of Financial Studies, Vol.22 (No.9). pp. 3491-3530. doi:10.1093/rfs/hhn058 ISSN 0893-9454.
Research output not available from this repository.
Request-a-Copy directly from author or use local Library Get it For Me service.
Official URL: http://dx.doi.org/10.1093/rfs/hhn058
Abstract
This paper provides a comprehensive evaluation of the short-horizon predictive ability of economic fundamentals and forward premiums on monthly exchange-rate returns in a framework that allows for volatility timing. We implement Bayesian methods for estimation and ranking of a set of empirical exchange rate models, and construct combined forecasts based on Bayesian model averaging. More importantly, we assess the economic value of the in-sample and out-of-sample forecasting power of the empirical models, and find two key results: (1) a risk-averse investor will pay a high performance fee to switch from a dynamic portfolio strategy based on the random walk model to one that conditions on the forward premium with stochastic volatility innovations and (2) strategies based on combined forecasts yield large economic gains over the random walk benchmark. These two results are robust to reasonably high transaction costs.
Item Type: | Journal Article | ||||
---|---|---|---|---|---|
Subjects: | H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions |
||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
||||
Journal or Publication Title: | Review of Financial Studies | ||||
Publisher: | Oxford University Press | ||||
ISSN: | 0893-9454 | ||||
Official Date: | September 2009 | ||||
Dates: |
|
||||
Volume: | Vol.22 | ||||
Number: | No.9 | ||||
Number of Pages: | 40 | ||||
Page Range: | pp. 3491-3530 | ||||
DOI: | 10.1093/rfs/hhn058 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
Data sourced from Thomson Reuters' Web of Knowledge
Request changes or add full text files to a record
Repository staff actions (login required)
View Item |