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IS EXCHANGE RATE RETURN PREDICTABLE?

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Author(s): Mohsen Mehrara | Ali Reza Oryoie

Journal: Economics and Finance Review
ISSN 2047-0401

Volume: 1;
Issue: 7;
Start page: 10;
Date: 2011;
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Keywords: Exchange Rate | Forecasting | Martingale Difference Sequences

ABSTRACT
The question of whether asset price changes are predictable has long been the subject of many studies. This article assesses the predictability of the returns of weekly exchange rates of the Canadian dollar, the euro, and the British pound against the US dollar after the recent global financial crisis in 2007. It will be shown that the returns are predictable using publicly available information, while they are martingale difference sequences. Therefore, the answer to the question whether exchange rate returns are predictable, depends on the methodology used for testing predictability.
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