Foreign exchange predictability and the carry trade: a decomposition approach

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985998%3A_____%2F17%3A00475678" target="_blank" >RIV/67985998:_____/17:00475678 - isvavai.cz</a>
Alternative codes found
RIV/00216208:11640/17:00482123
Result on the web
<a href="http://dx.doi.org/10.1016/j.jempfin.2017.03.005" target="_blank" >http://dx.doi.org/10.1016/j.jempfin.2017.03.005</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1016/j.jempfin.2017.03.005" target="_blank" >10.1016/j.jempfin.2017.03.005</a>

Result language
angličtina
Original language name
Foreign exchange predictability and the carry trade: a decomposition approach
Original language description
In this paper, we decompose currency returns into multiplicative sign and absolute return components, which exhibit much greater predictability than raw returns, and use the joint conditional distribution of these components to obtain forecasts of future exchange rate returns. Our results suggest that the decomposition model produces higher forecast and directional accuracy than any of the competing models. We undertake trading exercises using carry trade returns and show that the forecasting gains translate into economically and statistically significant (risk-adjusted) profitability when trading individual currencies or forming currency portfolios based on the predicted returns from the decomposition model.
Czech name
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Czech description
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Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
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OECD FORD branch
50206 - Finance

Project
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Continuities
I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Publication year
2017
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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