Do Stock Markets Have Predictive Content for Exchange Rate Movements?

Posted: 18 Jan 2018

See all articles by Shiu‐Sheng Chen

Shiu‐Sheng Chen

Department of Economics, National Taiwan University

Cheng-Che Hsu

National Taiwan University

Date Written: January 9, 2018

Abstract

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

Chen, Shiu-Sheng and Hsu, Cheng-Che, Do Stock Markets Have Predictive Content for Exchange Rate Movements? (January 9, 2018). Available at SSRN: https://ssrn.com/abstract=3098610 or http://dx.doi.org/10.2139/ssrn.3098610

Shiu-Sheng Chen (Contact Author)

Department of Economics, National Taiwan University ( email )

No. 1, Sec. 4, Roosevelt Road
Taipei, 10617
Taiwan

Cheng-Che Hsu

National Taiwan University ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

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