Do stock markets have predictive content for exchange rate movements?

Shiu-Sheng Chen and Cheng‐Che Hsu

Journal of Forecasting, 2019, vol. 38, issue 7, 699-713

Abstract: This paper examines short‐horizon exchange rate predictability and investigates whether stock returns contain information for forecasting daily exchange rate movements. Inspired by the uncovered equity parity condition, we show that stock return differentials have in‐sample and out‐of‐sample predictive power for nominal exchange rates with short horizons (1‐day‐ahead predictions). That is, stock markets inform us about exchange rate movements, at least in the case of high‐frequency data.

Date: 2019
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Citations: View citations in EconPapers (8)

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https://doi.org/10.1002/for.2592

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jforec:v:38:y:2019:i:7:p:699-713

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