Can exchange rate models outperform the random walk? Magnitude, direction and profitability as criteria
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 dat...
| Main Authors: | , |
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| Format: | Journal Article |
| Published: |
Bankwest Curtin Economics Centre
2015
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| Online Access: | http://hdl.handle.net/20.500.11937/30822 |
| _version_ | 1848753200239214592 |
|---|---|
| author | Moosa, I. Burns, Kelly |
| author_facet | Moosa, I. Burns, Kelly |
| author_sort | Moosa, I. |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | 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. |
| first_indexed | 2025-11-14T08:20:44Z |
| format | Journal Article |
| id | curtin-20.500.11937-30822 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T08:20:44Z |
| publishDate | 2015 |
| publisher | Bankwest Curtin Economics Centre |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-308222017-01-30T13:21:42Z Can exchange rate models outperform the random walk? Magnitude, direction and profitability as criteria Moosa, I. Burns, Kelly 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. 2015 Journal Article http://hdl.handle.net/20.500.11937/30822 Bankwest Curtin Economics Centre restricted |
| spellingShingle | Moosa, I. Burns, Kelly Can exchange rate models outperform the random walk? Magnitude, direction and profitability as criteria |
| title | Can exchange rate models outperform the random walk? Magnitude, direction and profitability as criteria |
| title_full | Can exchange rate models outperform the random walk? Magnitude, direction and profitability as criteria |
| title_fullStr | Can exchange rate models outperform the random walk? Magnitude, direction and profitability as criteria |
| title_full_unstemmed | Can exchange rate models outperform the random walk? Magnitude, direction and profitability as criteria |
| title_short | Can exchange rate models outperform the random walk? Magnitude, direction and profitability as criteria |
| title_sort | can exchange rate models outperform the random walk? magnitude, direction and profitability as criteria |
| url | http://hdl.handle.net/20.500.11937/30822 |