Long-horizon exchange rate expectations

Lukas Kremens, Ian Martin and Liliana Varela

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study exchange rate expectations in surveys of financial professionals and find that they successfully forecast currency appreciation at the two-year horizon, both in and out of sample. Exchange rate expectations are also interpretable, in the sense that three macrofinance variables—the risk-neutral covariance between the exchange rate and equity market, the real exchange rate, and the current account relative to GDP—explain most of their variation. But there is no “secret sauce” in expectations: after controlling for the three macro-finance variables, the residual information in survey expectations does not forecast currency appreciation in our sample.

JEL-codes: F3 G3 (search for similar items in EconPapers)
Date: 2025-09-29
New Economics Papers: this item is included in nep-mon
References: Add references at CitEc
Citations:

Published in Journal of Finance, 29, September, 2025. ISSN: 0022-1082

Downloads: (external link)
http://eprints.lse.ac.uk/127790/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:127790

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().