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SUMMARY:On the Forecasting Performance of Macroeconomic Fundamentals on Ex
 change Rate Movements - Weiwei Yin (Faculty of Economics)
DTSTART:20101019T160000Z
DTEND:20101019T170000Z
UID:TALK27207@talks.cam.ac.uk
CONTACT:Rachel Marston
DESCRIPTION:This paper investigates the forecasting performance of macroec
 onomic fundamentals on exchange rate returns using a macro-finance approac
 h. Exchange rate movements are endogenously determined by the ratio betwee
 n domestic and foreign stochastic discount factors\, through which the mac
 roeconomic fundamentals nonlinearly model the exchange rate dynamics. Usin
 g three floating nominal exchange rates\, i.e. DEM(EUR)/USD\, GBP/USD\, an
 d JPY/USD observed at the monthly as well as quarterly time frequencies\, 
 this paper has the following findings. First\, five out of the six model-i
 mplied time-varying foreign exchange risk premiums satisfy the Fama condit
 ions (Fama\, 1984). Second\, comparing to the random walk model\, this no-
 arbitrage macro-finance model reduces the forecasting root mean square err
 ors\, especially for data observed at the quarterly time frequency.
LOCATION:Winstanley Lecture Hall\, Trinity College
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