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The Continuing Puzzle of Short Horizon Exchange Rate Forecasting

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Abstract

The goal of the present study is to re-examine the exchange rate predictability with an approach that accounts for the negative effect of the finite-sample estimation error on forecast accuracy in the in-sample test. We consider various exchange rate models and find that despite the presence of significant population-level predictive content in the exchange rate model, the coefficients of the predictive variables could be small enough that, with the available sample, they are estimated so imprecisely that a random walk model can be expected to forecast at least as well as the exchange rate model.

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Authors and Affiliations

  1. National University of Kaohsiung, Taiwan

    Hsiu-Hsin Ko

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Ko, HH. Exchange Rate Predictability in Finite Samples. JER 67, 361–378 (2016). https://doi.org/10.1111/jere.12097

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  • DOI : https://doi.org/10.1111/jere.12097

JEL Classification Numbers

  • F31
  • F37

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