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Long-Horizon Exchange Rate Predictability?

Jeremy Berkowitz and Lorenzo Giorgianni

No 1996-39, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Several authors have recently investigated the predictability of exchange rates by fitting a sequence of long-horizon error-correction regressions. We show that such a procedure gives rise to spurious evidence of predictive power. A simulation study demonstrates that even when using this technique on two independent series, estimates and diagnostic statistics suggest a high degree of predictability of the dependent variable. We apply a simple modification of the long-horizon regression due to Jegadeesh (1991), which may provide more accurate inferences for researchers interested in comparing short and long-run predictability of U.S. dollar exchange rates.

Keywords: Spurious; inference; long-run (search for similar items in EconPapers)
Pages: 17 pages
Date: 2019-12-10
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Citations: View citations in EconPapers (5) Track citations by RSS feed

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Related works:
Journal Article: Long-Horizon Exchange Rate Predictability? (2001) Downloads
Working Paper: Long-horizon exchange rate predictability? (1996) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:1996-39

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