Using extracted forward rate term structure information to forecast foreign exchange rates
| Autor: | Finbarr Murphy, Fearghal Kearney, Mark Cummins |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2019 |
| Předmět: |
040101 forestry
Economics and Econometrics 050208 finance Computer science 05 social sciences Scalar (physics) 04 agricultural and veterinary sciences Random walk foreign exchange forward rate term structure modelling functional data analysis multiple hypothesis testing Term (time) Exchange rate Benchmark (surveying) Forward rate 0502 economics and business Principal component analysis Econometrics 0401 agriculture forestry and fisheries Trading strategy Finance |
| Zdroj: | Kearney, Fearghal ORCID: 0000-0002-3251-8707 Kearney, F, Cummins, M & Murphy, F 2019, ' Using Extracted Forward Rate Term Structure Information to Forecast Foreign Exchange Rates ', Journal of Empirical Finance, vol. 53, pp. 1-14 . https://doi.org/10.1016/j.jempfin.2019.05.002 |
| DOI: | 10.1016/j.jempfin.2019.05.002 |
| Popis: | The difficulty of beating the random walk in forecasting spot foreign exchange rates is well documented. In this paper, we propose a functional principal component-based scalar response model which we benchmark versus leading VECM frameworks. Our approach leads to near systematic outperformance in terms of a comparison of performance measures, and to multiple instances of statistically significant improvements in forecast accuracy. Overall, our results provide evidence that the forward rate term structure contains substantial information about the evolution of the spot exchange rate. Finally, a stylised trading strategy is employed to demonstrate the potential economic benefits of our approach. |
| Databáze: | OpenAIRE |
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