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Investing under model uncertainty : decision based evaluation of exchange rate forecasts in the US, UK and Japan
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Garratt, Anthony and Lee, Kevin (2010) Investing under model uncertainty : decision based evaluation of exchange rate forecasts in the US, UK and Japan. Journal of International Money and Finance, Volume 29 (Number 3). pp. 403-422. doi:10.1016/j.jimonfin.2009.07.002 ISSN 02615606.
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Official URL: http://dx.doi.org/10.1016/j.jimonfin.2009.07.002
Abstract
We evaluate the forecast performance of a range of theory-based and atheoretical models explaining exchange rates in the US, UK and Japan. A decision-making environment is fully described for an investor who optimally allocates portfolio shares to domestic and foreign assets. Methods necessary to compute and use forecasts in this context are proposed, including the means of combining density forecasts to deal with model uncertainty. An out-of-sample forecast evaluation exercise is described using both statistical criteria and decision-based criteria. The theory-based models are found to perform relatively well when their forecasts are judged by their economic value.
| Item Type: | Journal Article | ||||||
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| Subjects: | H Social Sciences > HB Economic Theory | ||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Global Energy Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Foreign exchange rates , Bank investments | ||||||
| Journal or Publication Title: | Journal of International Money and Finance | ||||||
| Publisher: | Elsevier BV | ||||||
| ISSN: | 02615606 | ||||||
| Official Date: | April 2010 | ||||||
| Dates: |
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| Volume: | Volume 29 | ||||||
| Number: | Number 3 | ||||||
| Number of Pages: | 19 | ||||||
| Page Range: | pp. 403-422 | ||||||
| DOI: | 10.1016/j.jimonfin.2009.07.002 | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | Published | ||||||
| Access rights to Published version: | Restricted or Subscription Access |
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