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Nonlinear analysis for forecasting currencies: are they useful to the portfolio manager?

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Foort Hamelink
Abstract

The importance of a time-varying specification for both the return and the risk of financial assets is well known. The purpose of this study is to investigate if some of the most recently developed econometric models, combined with technical indicators often used by practitioners, can significantly predict future returns. While most studies have focused on either univariate series or in-sample analyses of a given econometric specification, this study considers a multivariate framework where a US based investor daily reallocates a portfolio of three currencies (Deutschmark, Swiss Franc and Japanese Yen). Series of three years out-of-sample forecasts are analysed in terms of risk and return and it is shown that some of the tested specifications can indeed significantly predict future daily returns and correlations over this three-year period.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal The European Journal of Finance.

Volume (Year): 7 (2001)
Issue (Month): 4 (December)
Pages: 335-355
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Handle: RePEc:taf:eurjfi:v:7:y:2001:i:4:p:335-355

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Related research
Keywords: Time-VARYING Specification Financial Assets Econometric Models Technical Indicators Future Returns Multivariate Framework;

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  7. Blume, Lawrence & Easley, David & O'Hara, Maureen, 1994. " Market Statistics and Technical Analysis: The Role of Volume," Journal of Finance, American Finance Association, vol. 49(1), pages 153-81, March. [Downloadable!] (restricted)
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