An Economic Evaluation of Empirical Exchange Rate Models

• 成果类型: Article
• 署名作者: Della Corte, Pasquale; Sarno, Lucio; Tsiakas, Ilias
• 署名单位: University of Warwick; AXA Group
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhn058
• 发表日期: 2009
• 页码: 3491
• 关键词: stock return predictability; term structure models; stochastic volatility; monetary fundamentals; marginal likelihood; bayesian-inference; asset-allocation; PREMIUM PUZZLE; rate dynamics; long-run

摘要

This paper provides a comprehensive evaluation of the short-horizon predictive ability of economic fundamentals and forward premiums on monthly exchange-rate returns in a framework that allows for volatility timing. We implement Bayesian methods for estimation and ranking of a set of empirical exchange rate models, and construct combined forecasts based on Bayesian model averaging. More importantly, we assess the economic value of the in-sample and out-of-sample forecasting power of the empirical models, and find two key results: (1) a risk-averse investor will pay a high performance fee to switch from a dynamic portfolio strategy based on the random walk model to one that conditions on the forward premium with stochastic volatility innovations and (2) strategies based on combined forecasts yield large economic gains over the random walk benchmark. These two results are robust to reasonably high transaction costs.