Modeling and predictability of exchange rate changes by the extended relative Nelson-Siegel class of models

Artikel

This paper investigates the predictability of exchange rate changes by extracting the factors from the three-, four-, and five-factor model of the relative Nelson-Siegel class. Our empirical analysis shows that the relative spread factors are important for predicting future exchange rate changes, and our extended model improves the model fitting statistically. The regression model based on the three-factor relative Nelson-Siegel model is the superior model of the extended models for three-month-ahead out-of-sample predictions, and the prediction accuracy is statistically significant from the perspective of the Clark and West statistic. For 6- and 12-month-ahead predictions, although the five-factor model is superior to the other models, the prediction accuracy is not statistically significant.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: International Journal of Financial Studies ; ISSN: 2227-7072 ; Volume: 6 ; Year: 2018 ; Issue: 3 ; Pages: 1-15 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; Foreign Exchange ; Financial Forecasting and Simulation
• Subject: predictability ; exchange rate ; uncovered interest rate parity ; yield curve model

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ishii, Hokuto
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2018

Further information

• DOI: doi:10.3390/ijfs6030068
• Handle: http://hdl.handle.net/10419/195729
• Last update: 10.03.2025, 11:44 AM CET