Long: Horizon Exchange Rate Predictability?

Author/Editor:

Lorenzo Giorgianni ; Jeremy Berkowitz

Publication Date:

January 1, 1997

Electronic Access:

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Summary:

Several authors have recently investigated the predictability of exchange rates by fitting a sequence of long-horizon error-correction regressions. By considering the implied vector error-correction model, we show that little is to be gained from estimating such regressions for horizons greater than one time period. We also show that in small to medium samples the long-horizon procedure gives rise to spurious evidence of predictive power. A simulation study demonstrates that even when using this technique on two independent series, estimates, diagnostic statistics and graphical evidence incorrectly suggest a high degree of predictability of the dependent variable.

Series:

Working Paper No. 1997/006

Subject:

Econometric analysis Exchange rates Foreign exchange Vector error correction models

English

Publication Date:

January 1, 1997

ISBN/ISSN:

9781451842265/1018-5941

Stock No:

WPIEA0061997

Pages:

21

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