Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Jesus Crespo Cuaresma
Can Macroeconomists Get Rich Forecasting Exchange Rates?
(), Mauro Costantini
() and Jaroslava Hlouskova
Abstract: We provide a systematic comparison of the out-of-sample
forecasts based on multivariate macroeconomic models and forecast
combinations for the euro against the US dollar, the British pound, the
Swiss franc and the Japanese yen. We use profit maximization measures based
on directional accuracy and trading strategies in addition to standard loss
minimization measures. When comparing predictive accuracy and profit
measures, data snooping bias free tests are used. The results indicate that
forecast combinations help to improve over benchmark trading strategies for
the exchange rate against the US dollar and the British pound, although the
excess return per unit of deviation is limited. For the euro against the
Swiss franc or the Japanese yen, no evidence of generalized improvement in
profit measures over the benchmark is found.
Keywords: Exchange rate forecasting, forecast combination, multivariate time series models, profitability; (follow links to similar papers)
JEL-Codes: C53,; F31,; F37; (follow links to similar papers)
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