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Generating currency trading rules from the term structure of forward foreign exchange premia
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Sager, Michael and Taylor, Mark P. (2014) Generating currency trading rules from the term structure of forward foreign exchange premia. Journal of International Money and Finance, Volume 44 . pp. 230-250. doi:10.1016/j.jimonfin.2013.03.005 ISSN 02615606.
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Official URL: http://dx.doi.org/10.1016/j.jimonfin.2013.03.005
Abstract
The quality of an exchange rate forecasting model has typically been judged relative to a random-walk in terms of out-of-sample forecast errors. The difficulty of outperforming this benchmark is well documented, although Clarida and Taylor have demonstrated how the random walk can be beaten in this metric by exploiting information embedded within the term structure of forward exchange rate premia. But this achievement does not guarantee success within an investment context. We therefore assess whether the Clarida-Taylor framework can be used to generate significant trading profits in combination with an acceptable degree of risk in a realistic investment portfolio context.
| Item Type: | Journal Article | ||||||
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| Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||
| Journal or Publication Title: | Journal of International Money and Finance | ||||||
| Publisher: | Elsevier BV | ||||||
| ISSN: | 02615606 | ||||||
| Official Date: | June 2014 | ||||||
| Dates: |
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| Volume: | Volume 44 | ||||||
| Page Range: | pp. 230-250 | ||||||
| DOI: | 10.1016/j.jimonfin.2013.03.005 | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | Published | ||||||
| Access rights to Published version: | Restricted or Subscription Access |
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