Performance, Bias, and Efficiency of Foreign Exchange Correlation Forecasts

53 Pages Posted: 18 Mar 2008

See all articles by Stefano Mazzotta

Stefano Mazzotta

Kennesaw State University - Michael J. Coles College of Business

Date Written: January 2008

Abstract

This paper evaluates the performance, bias, and the efficiency of option-implied, and return-based correlation measures using twelve years of daily data on foreign exchange and over-the-counter (OTC) currency option. The sample includes five years of rates for the Polish zloty and the Czech koruna with respect to the euro and the U.S. dollar. The results show that implied correlation is a good predictor of realized correlation and is, generally, unbiased and efficient.

Keywords: Foreign exchange implied correlation, forecasting bias, correlation risk premium

JEL Classification: F31, F37, G15, E58

Suggested Citation

Mazzotta, Stefano, Performance, Bias, and Efficiency of Foreign Exchange Correlation Forecasts (January 2008). Available at SSRN: https://ssrn.com/abstract=1106383 or http://dx.doi.org/10.2139/ssrn.1106383

Stefano Mazzotta (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

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Kennesaw, GA 30144
United States
(470) 578-6341 (Phone)
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HOME PAGE: http://www.mazzotta.info

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