Can exchange rate models outperform the random walk? Magnitude, direction and profitability as criteria
MetadataShow full item record
While many explanations have been put forward for the failure of exchange rate models to outperform the random walk in out-of-sample forecasting, a simple explanation is the use of measures of forecasting accuracy that depend entirely on the magnitude of the forecasting error. By using simulated data representing the forecasts of eight models, it is demonstrated that the random walk can be outperformed if forecasting power is judged by measures of direction accuracy, by adjusting the root mean square error to take into account direction accuracy, and by using the risk-adjusted return obtained from a trading strategy based on the forecasts.
Showing items related by title, author, creator and subject.
Comparison of Individual and Combined Forecasting of Wind Power Output of Two Wind Farms in Western AustraliaBanerjee, Binayak; Jayaweera, Dilan; Islam, Syed (2012)Large penetration of wind farms in the electricity grid is expected to be an unknown challenge in the near future. The biggest factor is the intermittency of wind turbine output and the difficulty in forecasting it ...
Mostafa, Fahed. (2011)Market risk refers to the potential loss that can be incurred as a result of movements inmarket factors. Capturing and measuring these factors are crucial in understanding andevaluating the risk exposure associated with ...
Lim, Jit Yang (2002)One of the prominent features of the Natural Rubber (NR) market is its price variability, and the aim of this study is to project accurate short-term NR prices. This is accomplished by exploiting the use of forecasting ...