Information about this author at RePEc
NBER Working Papers and Publications
|November 2010||Currency Carry Trades|
with Òscar Jordà, Alan M. Taylor
in NBER International Seminar on Macroeconomics 2010, Richard Clarida and Francesco Giavazzi, organizers
|October 2010||Currency Carry Trades|
with Òscar Jordà, Alan M. Taylor: w16491
A wave of recent research has studied the predictability of foreign currency returns. A wide variety of forecasting structures have been proposed, including signals such as carry, value, momentum, and the forward curve. Some of these have been explored individually, and others have been used in combination. In this paper we use new econometric tools for binary classification problems to evaluate the merits of a general model encompassing all these signals. We find very strong evidence of forecastability using the full set of signals, both in sample and out-of-sample. This holds true for both an unweighted directional forecast and one weighted by returns. Our preferred model generates economically meaningful returns on a portfolio of nine major currencies versus the U.S. dollar, with favora...