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    Investing under model uncertainty: decision based evaluation of exchange rate and interest rate forecasts in the US, UK and Japan

    Garratt, Anthony and Lee, K. (2006) Investing under model uncertainty: decision based evaluation of exchange rate and interest rate forecasts in the US, UK and Japan. Working Paper. Birkbeck, University of London, London, UK.

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    Abstract

    We evaluate the forecast performance of a range of theory-based and atheoretical models explaining exchange rates and interest rates in US, UK and Japan. The decision-making environment is fully described for an investor who optimally allocates portfolio shares to domestic and foreign assets. Methods necessary to compute and use forecasts in this context are proposed, including the means of combining density forecasts to deal with model uncertainty. An out-of-sample evaluation exercise covering the 1990’s is described, comparing statistical criteria with decision-based criteria. The theory-based models are found to perform relatively well when their forecasts are judged by their economic value.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BWPEF 0616
    School: School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 28 Mar 2019 06:32
    Last Modified: 03 Mar 2021 02:23
    URI: https://eprints.bbk.ac.uk/id/eprint/26927

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