Can the intermediary capital risk predict foreign exchange rates?

Libo Yin ()

Finance Research Letters, 2020, vol. 37, issue C

Abstract: The intermediary capital risk (ICR) is recently perceived as an important indicator of economic activities and risk premiums. In this paper, we provide individual time-series predictability of ICR for exchange rates of twelve major currencies against US dollar, in both in-sample and out-of-sample settings. This predictive pattern is robust when controlling for macroeconomic variables. Further analysis shows that a simple linear regression is sufficient to capture the predictive performance. Our results imply that the ICR factor is a useful predictor for exchange rates.

Keywords: Intermediary capital risk; Exchange rates; Predictability (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:37:y:2020:i:c:s1544612319305367

DOI: 10.1016/j.frl.2019.101349

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