EconPapers    
Economics at your fingertips  
 

Can the Baltic Dry Index predict foreign exchange rates?

Liyan Han, Li Wan and Yang Xu

Finance Research Letters, 2020, vol. 32, issue C

Abstract: The Baltic Dry Index (BDI) is commonly perceived as a leading indicator of economic activities. In this paper, we explore whether the BDI has predictive ability for exchange rates of fourteen major currencies against US dollar. Results of panel regression demonstrate that the BDI provides statistically significant long-run predictability of currency returns. An increase in the BDI is associated with a depreciation of currency. The three sub-indices of the BDI also show significant predictive power with similar patterns. The in-sample and out-of-sample results of individual time-series regressions illustrate that the BDI shows significant predictive ability in majority of the cases and displays an inverted U-shaped predictive pattern. Our results imply that by capturing information about economic fundamentals the BDI is a useful predictor for exchange rates.

Keywords: Baltic Dry Index; Exchange rates; Long-run Predictability (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612318307876
Full text for ScienceDirect subscribers only

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:eee:finlet:v:32:y:2020:i:c:s1544612318307876

DOI: 10.1016/j.frl.2019.04.014

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-05-23
Handle: RePEc:eee:finlet:v:32:y:2020:i:c:s1544612318307876