Evaluating strategic directional probability predictions of exchange rates Online publication date: Sun, 06-Jun-2010
by Andrew C. Pollock, Alex Macaulay, Mary E. Thomson, M. Sinan Gonul, Dilek Onkal
International Journal of Applied Management Science (IJAMS), Vol. 2, No. 3, 2010
Abstract: The current paper aims to examine strategic predictions (with forecast horizons greater than six months) via the empirical probability (EP) technique. This technique was proposed initially to examine short-term tactical predictions (with forecast horizons less than three months), as set out in Pollock et al. (2005). The proposed procedure is based on the hypothesis that changes in logarithms of daily exchange rates follow a normal distribution over short horizons (of 10 to 30 days), but longer term forecast evaluation requires consideration of cumulative parameters consistent with changing means and standard deviations arising from primary and secondary trends. It is shown that ex-post EPs can be obtained for any predictive horizon above 30 days (e.g., 180 days) by using a combination of shorter (e.g., 20-day) Student t distributions. The procedure is illustrated using daily Euro/USD series from 4 January 1999 to 29 January 2008 to evaluate a set of Euro/USD directional probability predictions.
Online publication date: Sun, 06-Jun-2010
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Applied Management Science (IJAMS):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email firstname.lastname@example.org