Forecasting currency excess returns: Can the forward bias be exploited?

Journal of Financial and Quantitative Analysis

Volumn 42, Issue 4, 2007, Pages 963-990

  Villanueva, O Miguel ^a  

^a Advanced Research Center   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 37849034630     PISSN: 00221090     EISSN: None     Source Type: Journal    
DOI: 10.1017/s002210900000346x     Document Type: Article

References (50)

1. Alexius, A. "Uncovered Interest Parity Revisited." Review of International Economics, 9 (2001), 505-517.
2. Aliber, R. Z.; B. Chowdhry; and S. Yan. "Some Evidence that a Tobin Tax on Foreign Exchange Transactions May Increase Volatility." European Finance Review, 7 (2003), 481-510.
3. Amihud, Y., and C. M. Hurvich. "Predictive Regressions: A Reduced-Bias Estimation Method." Journal of Financial and Quantitative Analysis, 39 (2004), 813-841.
4. Baillie, R. T., and T. Bollerslev. "The Long Memory of the Forward Premium." Journal of International Money and Finance, 13 (1994), 565-571.
5. Baillie, R. T., and T. Bollerslev. "The Forward Premium Anomaly is Not as Bad as You Think." Journal of International Money and Finance, 19 (2000), 471-488.
6. Bansal, R. "An Exploration of the Forward Premium Puzzle in Currency Markets." Review of Financial Studies, 10 (1997), 369-403.
7. Bansal, R., and M. Dahlquist. "The Forward Premium Puzzle: Different Tales from Developed and Emerging Economies." Journal of International Economics, 51 (2000), 115-144.
8. Barnhart S. W.; R. McNown; and M. S. Wallace. "Non-Informative Tests of the Unbiased Forward Exchange Rate." Journal of Financial and Quantitative Analysis,34 (1999), 265-291.
9. Barnhart S. W., and A. C. Szakmary. "Testing the Unbiased Forward Rate Hypothesis: Evidence on Unit Roots, Cointegration, and Stochastic Coefficients." Journal of Financial and Quantitative Analysis, 26 (1991), 245-267.
10. Bekaert, G. "The Time Variation of Expected Returns and Volatility in Foreign-Exchange Markets." Journal of Business and Economic Statistics, 13 (1995), 397-408.
11. Bekaert, G., and R. J. Hodrick. "Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets." Journal of Finance, 47 (1992), 467-509.
12. Bekaert, G., and R. J. Hodrick. "On Biases in the Measurement of Foreign Exchange Risk Premiums." Journal of International Money and Finance, 12 (1993), 115-138.
13. Bekaert, G., and R. J. Hodrick. "Expectations Hypotheses Tests." Journal of Finance, 56 (2001), 1357-1399.
14. Bekaert, G.; R. J. Hodrick; and D. A. Marshall. "On Biases in Tests of the Expectations Hypothesis of the Term Structure of Interest Rates." Journal of Financial Economics, 44 (1997), 309-348.
15. Bekaert, G.; M. Wei; and Y. Xing. "Uncovered Interest Rate Parity and the Term Structure." Journal of International Money and Finance, 26 (2007), 1038-1069.
16. Bilson, J. F. O. "The Speculative Efficiency Hypothesis." Journal of Business, 54 (1981), 435-452.
17. Campbell, B., and J. M. Dufour. "Exact Non-Parametric Orthogonality and Random Walk Tests." Review of Economics and Statistics, 77 (1995), 1-16.
18. Chinn, M., and G. Meredith. "Monetary Policy and Long-Horizon Uncovered Interest Parity." IMF Staff Papers, 51 (2004), 409-430.
19. Clark, T. E., and K. D. West. "Using Out-of-Sample Mean Squared Prediction Errors to Test the Martingale Difference Hypothesis." Journal of Econometrics, 135 (2006), 155-186.
20. Diebold, F. X., and R. S. Mariano. "Comparing Predictive Accuracy." Journal of Business and Economic Statistics, 13 (1995), 253-263.
21. Engel, C. "The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence." Journal of Empirical Finance, 3 (1996), 123-192.
22. Fama, E. F. "Forward and Spot Exchange Rates." Journal of Monetary Economics, 33 (1984), 319-338.
23. Flood, R., and A. K. Rose. "Uncovered Interest Parity in Crisis." IMF Staff Papers, 49 (2002), 252-266.
24. Green, P. "Is Currency Trading Profitable? Exploiting Deviations from Uncovered Interest Parity." Financial Analysts Journal, July-August (1992), 82-86.
25. Hansen, L. P., and R. J. Hodrick. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis." Journal of Political Economy, 88 (1980), 829-853.
26. Henriksson, R. D., and R. C. Merton. "On Market Timing and Investment Performance: II. Statistical Procedures for Evaluating Forecasting Skills." Journal of Business, 54 (1981), 513-533.
27. Huisman, R.; K. Koedijk; C. Kool; and F. Nissen. "Extreme Support for Uncovered Interest Parity." Journal of International Money and Finance, 17 (1998), 211-228.
28. Kunsch, H. R. "The Jackknife and the Bootstrap for General Stationary Observations." The Annals of Statistics, 17 (1989), 1217-1241.
29. Lahiri, S. N. "Theoretical Comparisons of Block Bootstrap Methods." The Annals of Statistics, 27 (1999), 386-404.
30. Leitch, G., and J. E. Tanner. "Economic Forecast Evaluation: Profits versus the Conventional Error Measures." American Economic Review, 81 (1991), 580-590.
31. Levich, R. M., and L. Thomas. "The Significance of Technical Trading Rule Profits in the Foreign Exchange Market: A Bootstrap Approach." Journal of International Money and Finance, 12 (1993), 451-474.
32. Lewellen, J. "Predicting Returns with Financial Ratios?" Journal of Financial Economics, 74 (2004), 209-235.
33. Lewis, K. K. "Puzzles in International Financial Markets." In Handbook of International Economics, Vol. 3, G. Grossman and K. Rogoff, eds. Amsterdam: North-Holland (1995).
34. Liu, W., and A. Maynard. 'Testing Forward Rate Unbiasedness Allowing for Persistent Regressors." Journal of Empirical Finance, 12 (2005), 613-628.
35. Lothian, J. R., and L. Wu. Uncovered Interest Rate Parity over the Past Two Centuries. Working Paper, Fordham University (2003).
36. Mankiw, N. G., and M. D. Shapiro. "Do We Reject Too Often? Small Sample Properties of Rational Expectation Models." Economics Letters, 20 (1986), 243-247.
37. Meese, R., and K. Rogoff. "Empirical Exchange Rate Models of the Seventies: Do They Fit Out of Sample?" Journal of International Economics, 14 (1983), 3-24.
38. Neely, C. J., and P. Weller. "Predictability in International Asset Returns: A Reexamination." Journal of Financial and Quantitative Analysis, 35 (2000), 601-620.
39. Okunev, J., and D. White. "Do Momentum-Based Strategies Still Work in Foreign Currency Markets?" Journal of Financial and Quantitative Analysis, 38 (2003), 425-448.
40. Olson, D. "Have Trading Rule Profits in the Currency Markets Declined Over Time?" Journal of Banking and Finance, 28 (2004), 85-105.
41. Pesaran, M. H., and A. Timmermann. "A Simple Non-Parametric Test of Predictive Performance." Journal of Business & Economic Statistics, 10 (1992), 461-465.
42. Politis, D. N., and J. P. Romano. "The Stationary Bootstrap." Journal of the American Statistical Association, 89 (1994), 1303-1313.
43. Roll, R., and S. Yan. "An Explanation of the Forward Premium 'Puzzle.'" European Financial Management, 6 (2000), 121-148.
44. Rosenberg, M. The Deutsche Bank Guide to Exchange Rate Determination. New York: Deutsche Bank Global Market Research (2002).
45. Satchell, S., and A. Timmermann. "An Assessment of the Economic Value of Non-Linear Foreign Exchange Rate Forecasts." Journal of Forecasting, 14 (1995), 477-197.
46. Stambaugh, R. F. "Bias in Regressions with Lagged Stochastic Regressors." CRSP Working Paper 156 (1986).
47. Stambaugh, R. F. "Predictive Regressions." Journal of Financial Economics, 54 (1999), 375-421.
48. Tauchen, G. "The Bias of Tests for a Risk Premium in Forward Exchange Rates." Journal of Empirical Finance, 8 (2001), 695-704.
49. Taylor, M. P. "Covered Interest Parity: A High Frequency, High Quality Data Study." Economica, 54 (1987), 429-438.
50. Torous, W., and R. Valkanov. "Boundaries of Predictability: Noisy Predictive Regressions." Working Paper, UCLA (2000).