Do Stock Markets Have Predictive Content for Exchange Rate Movements?
39 Pages Posted: 18 Jan 2018
Date Written: January 9, 2018
This paper examines short-horizon exchange rate predictability and investigates whether stock returns contain information for forecasting daily exchange rate movements. Inspired by the uncovered equity parity condition, we show that stock return differentials have in-sample and out-of-sample predictive power for nominal exchange rates with short horizons (one-day-ahead predictions). That is, stock markets inform us about exchange rate movements, at least in the case of high-frequency data.
Keywords: exchange rates, forecasting, uncovered equity parity
JEL Classification: F31, G15, C53
Suggested Citation: Suggested Citation