Exchange rate forecasting and the performance of currency portfolios

Crespo Cuaresma, Jesus and Fortin, Ines and Hlouskova, Jaroslava (January 2017) Exchange rate forecasting and the performance of currency portfolios. IHS Economics Series 326, 64 p.

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Abstract or Table of Contents

We examine the potential gains of using exchange rate forecast models and forecast combination methods in the management of currency portfolios for three exchange rates, the euro (EUR) versus the US dollar (USD), the British pound (GBP) and the Japanese yen (JPY). We use a battery of econometric specifications to evaluate whether optimal currency portfolios implied by trading strategies based on exchange rate forecasts outperform single-currency and the equally weighted portfolio. We assess the differences in profitability of optimal currency portfolios for different types of investor preferences, different trading strategies, different composite forecasts and different forecast horizons.
Our results indicate that the benefits of integrating exchange rate forecasts from state-of-the-art econometric models in currency portfolios are sensitive to the trading strategy under consideration and vary strongly across prediction horizons.

Item Type: IHS Series
Keywords: currency portfolios, exchange rate forecasting, trading strategies, profitability
Funders: Oesterreichische Nationalbank (Anniversary Fund, Grant No. 16250)
Classification Codes (e.g. JEL): G02, G11, E20
Research Groups: Divisions > Former Research Groups > Financial Markets and Econometrics
Status: Published
Date Deposited: 12 Jan 2017 13:58
Last Modified: 19 Mar 2018 17:20

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