Can We Predict Exchange Rate Movements at Short Horizons?

ABSTRACT This paper explains the unpredictability of exchange rate movements at short horizons and provides a plausible answer on the exchange rate disconnect puzzle. By generalizing Chaboud and Wright's (Journal of International Economics 2005; 66: 349–362) work, it is shown that exchange rate...

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Bibliographic Details
Published inJournal of forecasting Vol. 31; no. 7; pp. 565 - 579
Main Authors Cheong, Chongcheul, Kim, Young-Jae, Yoon, Seong-Min
Format Journal Article
LanguageEnglish
Published Chichester Blackwell Publishing Ltd 01.11.2012
Wiley Periodicals Inc
Subjects
American dollar
Currencies
Dollar
Economic forecasting
Economic forecasts
Economic models
exchange rate disconnect puzzle
Exchange rates
Foreign exchange rates
Hypotheses
Hypothesis
International economics
Market
martingale
risk premium
Studies
U.S.A
United States > US
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Summary:ABSTRACT This paper explains the unpredictability of exchange rate movements at short horizons and provides a plausible answer on the exchange rate disconnect puzzle. By generalizing Chaboud and Wright's (Journal of International Economics 2005; 66: 349–362) work, it is shown that exchange rates follow a martingale process at short horizons but over long horizons may contain some predictable structure. The empirical results applied to several major currencies of the US dollar support our hypothesis. This evidence is not coincided with the explanation of the inefficient market hypothesis under which exchange rate movements can be predictable in both short and long horizons. Copyright © 2011 John Wiley & Sons, Ltd.
Bibliography:Korean government - No. NRF-2010-371-B00008
ark:/67375/WNG-RC1090XT-P
ArticleID:FOR1236
istex:1E60FD0A30E67FA41D364593E52A8DF682F1593A
ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0277-6693
1099-131X
DOI:10.1002/for.1236