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Predicting exchange rate returns

journal contribution
posted on 01.01.2020, 00:00 authored by Paresh Narayan, Susan SharmaSusan Sharma, D H B Phan, G Liu
© 2019 We test whether forward premiums predict spot exchange rate returns for 16 currencies. We apply a recently developed time series predictability test that allows us to model data features including heteroskedasticity in forward premium. We discover return predictability for 75% (12/16) of currencies in our sample. Trading strategies show that investors can make more profits from our proposed forward premium model compared to a random walk model and foreign exchange carry trade model.

History

Journal

Emerging Markets Review

Article number

100668

Pagination

1 - 16

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

1566-0141

eISSN

1873-6173

Language

English

Notes

In Press

Publication classification

C Journal article; C1 Refereed article in a scholarly journal