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Forecasting errors, directional accuracy and profitability of currency trading: The case of EUR/USD exchange rate

Costantini, Mauro and Crespo Cuaresma, Jesus and Hlouskova, Jaroslava (2016) Forecasting errors, directional accuracy and profitability of currency trading: The case of EUR/USD exchange rate. Journal of Forecasting, 35 (7). pp. 652-668. ISSN 02776693

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Abstract

We provide a comprehensive study of out-of-sample forecasts for the EUR/USD exchange rate based on multivariate macroeconomic models and forecast combinations. 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, in particular those based on principal components of forecasts, help to improve over benchmark trading strategies, although the excess return per unit of deviation is limited.

Item Type: Article
Additional Information: The research in this paper has been supported by the Anniversary Fund of the Austrian Central Bank (Project No. 15308). This is the peer reviewed version of the following article, which has been published in final form at http://dx.doi.org/10.1002/for.2398 . This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving. To see the final version of this paper please visit the publisher's website. Access to the published version requires a subscription.
Keywords: exchange rate forecasting; forecast combination; multivariate time series models; profitability
Divisions: Departments > Volkswirtschaft > Makroƶkonomie
Forschungsinstitute > Human Capital and Development
Kompetenzzentren > Nachhaltigkeit
Version of the Document: Accepted for Publication
Depositing User: Gertraud Novotny
Date Deposited: 07 Aug 2017 10:25
Last Modified: 11 Mar 2018 14:36
Related URLs:
FIDES Link: https://bach.wu.ac.at/d/research/results/73979/
URI: http://epub.wu.ac.at/id/eprint/5672

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