Robert B. Gramacy
Samuel W. Malone
Enrique ter Horst

exchange rate fundamentals, forecasting, and speculation: bayesian models in black markets (replication data)

Although speculative activity is central to black markets for currency, the out-of-sample performance of structural models in those settings is unknown. We substantially update the literature on empirical determinants of black market rates and evaluate the out-of-sample performance of linear models and non-parametric Bayesian treed Gaussian process (BTGP) models against the random walk benchmark. Fundamentals-based models outperform the benchmark in out-of-sample prediction accuracy and trading rule profitability measures given future values of fundamentals. In simulated real-time trading exercises, however, the BTGP achieves superior realized profitability, accuracy and market timing, while linear models do no better than a random walk.

Data and Resources

Suggested Citation

Gramacy, Robert B.; Malone, Samuel W.; Horst, Enrique ter (2014): EXCHANGE RATE FUNDAMENTALS, FORECASTING, AND SPECULATION: BAYESIAN MODELS IN BLACK MARKETS (replication data). Version: 1. Journal of Applied Econometrics. Dataset.