Selective Attention in Exchange Rate Forecasting
Svatopluk Kapounek (),
Zuzana Kucerova () and
No 1035, KIER Working Papers from Kyoto University, Institute of Economic Research
We analyze the exchange rate forecasting performance under the assumption of selective attention. Although currency markets react to a variety of different information, we hypothesize that market participants process only a limited amount of information. Our analysis includes more than 100,000 news articles relevant to the six most-traded foreign exchange currency pairs for the period of 1979-2016. We employ a dynamic model averaging approach to reduce model selection uncertainty and to identify time-varying probability to include regressors in our models. Our results show that considering selective attention improves forecasting results. Specifically, we document a growing impact of foreign trade and monetary policy news on the Euro/United States of America dollar currency pair following the global financial crisis. Overall, our results point to the existence of selective attention in the case of most currency pairs.
Keywords: exchange rate; selective attention; news; dynamic model averaging (search for similar items in EconPapers)
JEL-codes: C11 F33 G41 (search for similar items in EconPapers)
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Journal Article: Selective Attention in Exchange Rate Forecasting (2022)
Working Paper: Selective Attention in Exchange Rate Forecasting (2021)
Working Paper: Selective Attention in Exchange Rate Forecasting (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:1035
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