EMPIRICAL ANALYSIS ON THE PREDICTORS OF FUTURE SPOT RATES

Thomas Chi-Nan Chiang

26 citations0/0 files storedThe Journal of Financial Research

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Forecasting Techniques and Applications

Abstract

Abstract This paper examines the issue of the prediction of future spot rates by applying the seemingly unrelated regression technique to four major currencies using data from January 1974 to September 1982. The empirical evidence indicates that current spot rates provide a better prediction of future spot rates than do current forward rates. In further rolling subsample studies, the estimated coefficients for current forward rates (or spot rates) are found to be sensitive to the new information. An important implication of this paper is that since the estimated coefficients vary over time, the underlying pattern of the generated coefficients should be extrapolated and incorporated into the exchange rate predictions.

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References

1983Empirical exchange rate models of the seventies 1984Forward and spot exchange rates 1980Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis 1979Empirical regularities in the behavior of exchange rates and theories of the foreign exchange market 1981The "Speculative Efficiency" Hypothesis 1980The "Speculative Efficiency" Hypothesis 1977Spot rates, forward rates and exchange market efficiency 1975The Random Behavior of Flexible Exchange Rates: Implications for Forecasting

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