Exchange rate forecasting and the performance of currency portfolios. IHS Economics Series 326

Crespo Cuaresma J, Fortin I, & Hlouskova J (2017). Exchange rate forecasting and the performance of currency portfolios. IHS Economics Series 326. IHS Vienna , Austria.

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Abstract

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: Other
Additional Information: IHS Economics Series, Working Paper No.326 Funder: Oesterreichische Nationalbank (Anniversary Fund, Grant No. 16250)
Uncontrolled Keywords: currency portfolios, exchange rate forecasting, trading strategies, profitability
Research Programs: Ecosystems Services and Management (ESM)
Depositing User: Romeo Molina
Date Deposited: 25 Jan 2017 09:59
Last Modified: 23 Mar 2017 09:38
URI: http://pure.iiasa.ac.at/14330

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