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Foreign Exchange Rates (foreign + exchange_rate)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting75%

Selected Abstracts

An explanation of the forward premium ,puzzle'

EUROPEAN FINANCIAL MANAGEMENT, Issue 2 2000
Richard Roll
Existing literature reports a puzzle about the forward rate premium over the spot foreign exchange rate. The premium is often negatively correlated with subsequent changes in the spot rate. This defies economic intuition and possibly violates market efficiency. Rational explanations include non-stationary risk premia and econometric mis-specifications, but some embrace the puzzle as a guide to profitable trading. We suggest there is really no puzzle. A simple model fits the data: forward exchange rates are unbiased predictors of subsequent spot rates. The puzzle arises because the forward rate, the spot rate, and the forward premium follow nearly non-stationary time series processes. We document these properties with an extended sample and show why they give the delusion of a puzzle. [source]

Economic transition and the decline of agricultural production in Estonia

JOURNAL OF INTERNATIONAL DEVELOPMENT, Issue 4 2005
Shujie Yao
Agricultural production in Estonia has declined rapidly under economic transition since 1992, causing a number of undesirable social and economic problems. Rural unemployment has increased, so has the incidence of poverty. The country has changed from being a net exporter to a net importer of many major agricultural products over a short period of time. To understand the causes of agricultural decline, this paper uses a policy analysis matrix (PAM) to study the competitiveness and profitability of various agricultural, fishery and forest products for the period 1994,95. The results suggest that much of the loss of production may have been explained by economic reforms that were intended to eradicate market distortions created by the former Soviet system, but government's ,non-interventionist' policy and the rigidity of foreign exchange rate may have aggravated the situation. Copyright © 2005 John Wiley & Sons, Ltd. [source]

Empirical modelling of the DEM/USD and DEM/JPY foreign exchange rate: Structural shifts in GARCH-models and their implications

APPLIED STOCHASTIC MODELS IN BUSINESS AND INDUSTRY, Issue 1 2002
Helmut Herwartz
Abstract We analyse daily changes of two log foreign exchange (FX) rates involving the Deutsche Mark (DEM) for the period 1975,1998, namely FX-rates measured against the US dollar (USD) and the Japanese yen (JPY). To account for volatility clustering we fit a GARCH(1,1)-model with leptokurtic innovations. Its parameters are not stable over the sample period and two separate variance regimes are selected for both exchange rate series. The identified points of structural change are close to a change of the monetary policies in the US and Japan, the latter of which is followed by a long period of decreasing asset prices. Having identified subperiods of homogeneous volatility dynamics we concentrate on stylized facts to distinguish these volatility regimes. The bottom level of estimated volatility turns out be considerably higher during the second part of the sample period for both exchange rates. A similar result holds for the average level of volatility and for implied volatility of heavily traded at the money options. Copyright © 2002 John Wiley & Sons, Ltd. [source]

Model-free evaluation of directional predictability in foreign exchange markets

JOURNAL OF APPLIED ECONOMETRICS, Issue 5 2007
Jaehun Chung
We examine directional predictability in foreign exchange markets using a model-free statistical evaluation procedure. Based on a sample of foreign exchange spot rates and futures prices in six major currencies, we document strong evidence that the directions of foreign exchange returns are predictable not only by the past history of foreign exchange returns, but also the past history of interest rate differentials, suggesting that the latter can be a useful predictor of the directions of future foreign exchange rates. This evidence becomes stronger when the direction of larger changes is considered. We further document that despite the weak conditional mean dynamics of foreign exchange returns, directional predictability can be explained by strong dependence derived from higher-order conditional moments such as the volatility, skewness and kurtosis of past foreign exchange returns. Moreover, the conditional mean dynamics of interest rate differentials contributes significantly to directional predictability. We also examine the co-movements between two foreign exchange rates, particularly the co-movements of joint large changes. There exists strong evidence that the directions of joint changes are predictable using past foreign exchange returns and interest rate differentials. Furthermore, both individual currency returns and interest rate differentials are also useful in predicting the directions of joint changes. Several sources can explain this directional predictability of joint changes, including the level and volatility of underlying currency returns. Copyright © 2007 John Wiley & Sons, Ltd. [source]

Normal mixture GARCH(1,1): applications to exchange rate modelling

JOURNAL OF APPLIED ECONOMETRICS, Issue 3 2006
Carol Alexander
Some recent specifications for GARCH error processes explicitly assume a conditional variance that is generated by a mixture of normal components, albeit with some parameter restrictions. This paper analyses the general normal mixture GARCH(1,1) model which can capture time variation in both conditional skewness and kurtosis. A main focus of the paper is to provide evidence that, for modelling exchange rates, generalized two-component normal mixture GARCH(1,1) models perform better than those with three or more components, and better than symmetric and skewed Student's t -GARCH models. In addition to the extensive empirical results based on simulation and on historical data on three US dollar foreign exchange rates (British pound, euro and Japanese yen), we derive: expressions for the conditional and unconditional moments of all models; parameter conditions to ensure that the second and fourth conditional and unconditional moments are positive and finite; and analytic derivatives for the maximum likelihood estimation of the model parameters and standard errors of the estimates. Copyright © 2006 John Wiley & Sons, Ltd. [source]

Currency forecasting based on an error components-seemingly unrelated nonlinear regression model

JOURNAL OF FORECASTING, Issue 8 2005
Winston T. Lin
Abstract This paper proposes to forecast foreign exchange rates by means of an error components-seemingly unrelated nonlinear regression (EC-SUNR) model and, simultaneously, explore the interrelationships among currencies from newly industrializing economies with those of highly industrialized countries. Based on the empirical results, we find that the EC-SUNR model improves on the performance of forecasting foreign exchange rates in comparison with an intrinsically nonlinear dynamic speed of adjustment model that has been shown to outperform several other important models in the forecasting literature. We also find evidence showing that the foreign exchange markets of the newly industrializing countries are influenced by those of the highly industrialized countries and vice versa, and that such interrelationships affect the accuracy of currency forecasting. Copyright © 2005 John Wiley & Sons, Ltd. [source]