Showing papers on "Forward exchange rate published in 2015"
TL;DR: In this paper, the authors show that when two forecasters are not independent, they produce forecasts of similar quality, in which case it is erroneous to use the forward rate as a forecaster and the spot rate as the benchmark.
Abstract: :In the issue under investigation the wheat cannot be separated from the chaff because all we have is chaff. The random walk and unbiased efficiency are equally bad forecasters that should not be used as benchmarks for measuring forecasting accuracy. The simulation and econometric results show that when two forecasters are not independent they produce forecasts of similar quality, in which case it is erroneous to use the forward rate as a forecaster and the spot rate as a benchmark. Theoretical and intuitive explanations are presented for why the random walk and unbiased efficiency produce poor-quality forecasts that are almost identical. The failure of unbiased efficiency is explained primarily in terms of the post Keynesian view of the forward exchange rate.
4 citations
TL;DR: In this paper, the rejection of FRUH does not necessary mean that forward exchange rates have little effect as forecasts of future spot exchange rates as claimed in the literature, due to symmetric feature of foreign exchange markets, they conjecture the size of forward exchange rate bias should be fairly small.
Abstract: In this short note, we argue that the rejection of forward exchange rate unbiasedness hypothesis (FRUH) does not necessary mean that forward exchange rates have little effect as forecasts of future spot exchange rates as claimed in the literature. Due to symmetric feature of foreign exchange markets, we conjecture the size of forward exchange rate bias should be fairly small. We combine theoretical analysis with the observation of empirical results to validate this conjecture.
2 citations
Journal Article•
TL;DR: By empirical testing, it was found that the N ARX model with NDF performs much better than the NARX model without NDF, and selecting the training data from a wide range and with the historical values impacting exchange rate tends to affect the model's generalization performance to a large extent.
Abstract: Based on the characteristics of the current RMB exchange rate,a new forecasting model should take into account the qualitative studies of exchange rate theories,the quantitative research of historical tendencies and the impact elicited by policy issuing.The nonlinear auto regressive model with exogenous inputs,NARX for short,was adopted to forecast RMB exchange rate,and the non-deliverable forward exchange rate,known as NDF,was selected as an external input of the NARX model to improve the forecasting performance in face of sudden policy and news.By empirical testing,it was found that the NARX model with NDF performs much better than the NARX model without NDF.Moreover,selecting the training data from a wide range and with the historical values impacting exchange rate tends to affect the model's generalization performance to a large extent.
1 citations
TL;DR: In this paper, the authors present theory and empirical evidence on that a forward-looking potential importer facing sunk costs will respond to expectation of future exchange rate fluctuations, showing that the extensive margin of import significantly responds to forward exchange rate premiums.
Abstract: This paper presents theory and empirical evidence on that a forward-looking potential importer facing sunk costs will respond to expectation of future exchange rate fluctuations. This finding indicates the importance of sunk costs in firms' decisions to import goods. Building upon a heterogeneous-firm framework, the model makes a variety of predictions about the effect of anticipated fluctuations in the domestic currency exchange rate. First, changes in the expectation of future exchange rates lead to the entry/exit of marginally productive firms, reshaping the extensive margin of imports, and inducing significant changes in aggregate import values. Second, the firm level marginal benefit/loss of importing diminishes as expected appreciation/depreciation persists, due to the impact of continued entry/exit on markups. This changing marginal benefit/loss consequently weakens the adjustment of the extensive margin in the long run. Third, firms present heterogeneous responses to forward exchange rate fluctuations in the presence of sunk costs; these responses are related to their access to credit and other firm-level characteristics. Using disaggregated transaction level data of Chinese imports from the United States combined with data on the US dollar-RMB future rates on the non-deliverable forward market, this paper confirms that the extensive margin of import significantly responds to forward exchange rate premiums. This paper also finds evidence on firms' heterogeneous responses to anticipated exchange rate changes that support the model predictions by merging import data with firm-level balance sheet data.
1 citations
Posted Content•
TL;DR: In this article, an assessment of the forecasting power of forward exchange rates for future spot exchange rates has been investigated by many researchers, and the extent to which the future spot currency exchange rates could be forecasted based on the current forward exchange rate was investigated.
Abstract: The forecasting power of forward exchange rates for future spot exchange rates has been investigated by many researchers. In this paper, the author focuses on this topical economic theme too, and investigates the extent, to which the future spot exchange rates could be forecasted based on the current forward exchange rates. The paper aims at an assessment of the forecasting of spot USD/EUR exchange rates based on the forward exchange rates in the period from 2005 to 2013. Graphical and regression analyses are used to investigate the relationship between daily closing spot and forward rates, namely between 3 month rates and 6 month rates. The ordinary least squares method is used in order to forecast the chosen parameters. Hypotheses related to these parameters are tested at a significance level of 5%. By means of the augmented Dickey-Fuller test for a unit root in a time series sample, the author investigates whether the time series of the parameters is stationary. Afterwards, the time series is detrended in order to guarantee stationarity. Transformation into a non-linear econometric model with integrated autoregressive process AR(1) is used in order to reduce high positive autocorrelation in the residuals of the model. Thereafter, forecasts of the detrended model are made. Results revealed the following findings. According to the graphical analysis, the current forward exchange rates probably cannot be considered sufficiently reliable forecasters of the future spot exchange rates. According to the regression analysis, the forward forecasts even systematically undervalue the future spot exchange rates. Summarized, the current forward exchange rates cannot be considered sufficiently reliable forecasters of the future spot exchange rates. The above-mentioned findings are important for financial analysts working in financial companies or enterprises, which import or export some products, thus trading with foreign business partners using foreign currencies. Speculators on foreign exchange markets could make use of the presented findings as well.