Author : Gion Donat Piras
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (885 download)
Book Synopsis Forecasting Exchange Rates Employing Technical and Fundamental Data Before and During the Financial Crisis by : Gion Donat Piras
Download or read book Forecasting Exchange Rates Employing Technical and Fundamental Data Before and During the Financial Crisis written by Gion Donat Piras and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: It is a well known fact that a naive random walk generates better exchange rate forecasts than economic models. The exchange rate is episodically unstable and the switching nature is inconsistent with a linear representation. However, empirical evidence in favour of non-linear models such as regime switching models, neural networks or non-parametric ones is weak. The present paper adopts an econometric method, which incorporates dynamic model averaging (DMA) and selection (DMS). The DMA / DMS framework adds additionally layers of flexibility by allowing parameters as well as the entire forecasting model to evolve over time. In addition this paper takes a different approach by forecasting exchange rates at a daily frequency. Thereby financial data is used as a proxy for macro-economic fundamentals and technical indicators are included in the set of potential predictor variables. The paper shows strong empirical evidence in favour of the employed model in the period before the bankruptcy of Lehman Brothers. During the financial crisis predictability in terms of the mean squared forecast error breaks down. The time-varying evolution of fundamental and technical forecasts allows investigating the evolution of the influence of two types of agents (fundamentalists and chartists) believed to operate in the foreign exchange market.