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Exchange rate predictability and dynamic Bayesian learning

Beckmann, J and Koop, G and Korobilis, D and Schüssler, R (2017) Exchange rate predictability and dynamic Bayesian learning. Working Paper. Essex Finance Centre Working Papers, Colchester. (Unpublished)

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Abstract

This paper considers how an investor in foreign exchange markets might exploit predictive information in macroeconomic fundamentals by allowing for switching between multivariate time series regression models. These models are chosen to reflect a wide array of established empirical and theoretical stylized facts. In an application involving monthly exchange rates for seven countries, we find that an investor using our methods to dynamically allocate assets achieves significant gains relative to benchmark strategies. In particular, we find strong evidence for fast model switching, with most of the time only a small set of macroeconomic fundamentals being relevant for forecasting.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: C11; D83; F31; G12; G15; G17; Exchange rates; economic fundamentals; Bayesian vector autoregression; forecasting; dynamic portfolio allocation
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 08 Dec 2017 14:38
Last Modified: 06 Jan 2022 13:44
URI: http://repository.essex.ac.uk/id/eprint/20781

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