Long-Horizon Exchange Rate Predictability?
Jeremy Berkowitz and
No 1996-39, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)
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
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Journal Article: Long-Horizon Exchange Rate Predictability? (2001)
Working Paper: Long-horizon exchange rate predictability? (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:1996-39
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