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4 edition of Can markov switching models predict excess foreign exchange returns? found in the catalog.

Can markov switching models predict excess foreign exchange returns?

Michael Dueker

Can markov switching models predict excess foreign exchange returns?

by Michael Dueker

  • 17 Want to read
  • 26 Currently reading

Published by Federal Reserve Bank of St. Louis in [St. Louis, Mo.] .
Written in English

    Subjects:
  • Foreign exchange rates -- Forecasting -- Econometric models.,
  • Markov processes.

  • Edition Notes

    StatementMichael J. Dueker and Christopher J. Neely.
    SeriesWorking paper ;, 2001-021D, Working paper (Federal Reserve Bank of St. Louis : Online) ;, 2001-021D.
    ContributionsNeely, Christopher J., Federal Reserve Bank of St. Louis.
    Classifications
    LC ClassificationsHB1
    The Physical Object
    FormatElectronic resource
    ID Numbers
    Open LibraryOL3476434M
    LC Control Number2005615920

    Can Markov Switching Models Predict Excess Foreign Exchange Returns? Download; Abstract: Technical trading rules, Markov switching, exchange rates, excess returns. Chinese Foreign Exchange Reserves, Policy Choices, and the U.S. Economy. Downloads Foreign exchange volatility, ARCH models, realized volatility, intraday periodicity. A Markov-Switching Approach to Measuring Exchange Market Pressure Keywords: Exchange market pressure, Markov-switching models, monetary policy. central bank intervention fueled by excess foreign exchange demand or supply. In contrast to Hamilton , the setup in this paper allows for periods of normal exchange rate.

    Otherwise, Markov switching models which incorporate GARCH specification in the variance equation have been developed. This may be employed to improve robustness of results. 4. Conclusion. The study developed a -state Markov switching model for the investigation of the long swings hypothesis in exchange rate movements. The model was applied to Cited by: 5. I have been using Autoregressio to replicate Hamilton's markov switching model published in If using the Hamilton data (real GNP in dollar) I could have the same result as the code example / the paper showed.

    Markov Switching Regimes in a Monetary Exchange Rate Model Introduction Exchange rate modelling has received a new lease of life as a result of simple monetary models having well-defined long-run properties (see, for example, Mac-Donald and Taylor, ). Knowing that fundamentals matter in . Can Markov switching models predict excess foreign exchange returns?, with Michael Dueker, Journal of Banking & Finance (February ), 31(2), – Year-end Seasonality in One-Month LIBOR Derivatives, with Drew B. Winters, WP A, JournalFile Size: 35KB.


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Can markov switching models predict excess foreign exchange returns? by Michael Dueker Download PDF EPUB FB2

This paper has used Markov switching models to create ex ante trading rules in the foreign exchange market. Markov models generate statistically and economically significant out-of-sample returns that are 95 basis points larger, on average, than those of conventional technical trading rules, and these returns appear to be fairly stable over by: Downloadable.

This paper merges the literature on technical trading rules with the literature on Markov switching to develop economically useful trading rules. The Markov models' out-of sample, excess returns modestly exceed those of standard technical rules and are profitable over the most recent subsample.

A portfolio of Markov and standard technical rules outperforms either set individually. Other contributions use Markov switching models to predict excess foreign exchange rate returns [see, for example, Dueker and Neely () for the yen/dollar rate and Khemiri () for the.

Can Markov switching models predict excess foreign exchange returns. Michael Dueker† Christopher J. Neely* Janu Abstract: This paper merges the literature on technical trading rules with the literature on Markov switching to develop economically useful trading rules.

The Markov models’ out-of. Downloadable (with restrictions). This paper merges the literature on technical trading rules with the literature on Markov switching to develop economically useful trading rules.

The Markov models' out-of sample, excess returns modestly exceed those of standard technical rules and are profitable over the most recent subsample.

A portfolio of Markov and standard technical rules outperforms. I read with interest an older paper "Can Markov Switching Models Predict Excess Foreign Exchange Returns?" by Dueker and Neely of the Federal Reserve Bank of St. Louis.I have a fondness for hidden Markov models because of its great success in speech recognition applications, but I confess that I have never been able to create a HMM model that outperforms simple technical indicators.

Markov switching models in classical performance and risk analysis. We apply such models for strategies based on sample of monthly data on excess market, size-sorted, and book-to-market (value)-sorted U.S. equity returns, we nd that Markov Switching Models and the Volatility Factor: A. The successful use of Markov switching models to investigate the exchange rates dynamics has also been investigated by Evans and Lewis, Bollen, Gray et al., Dewachter, Frömmel, MacDonald et al Author: Hans Dewachter.

dollar/mark, dollar/pound and dollar/French franc exchange rates can be described well by Hamilton’s () Markov switching model. This paper investigates whether the Markov switching model is a useful tool for describing the behavior of floating exchange rates more Size: KB.

Foreign exchange rates under Markov Regime switching model Stephane GOUTTE´ AND Benteng ZOU y Novem Abstract Under Hamilton ()’s type Markov regime switching framework, modified Cox-Ingersoll-Ross model is employed to study foreign exchange rate, where all parameters value depend on the value of a continuous time Markov File Size: KB.

Dueker, M. & Neely, C. (), ‘Can Markov switching models predict excess foreign exchange returns?’, Journal of Banking & Finance 31(2), – Dufays, A. (), Infinite-state Markov-switching for dynamic volatility and correlation models, CORE Discussion PapersUniversit catholique de Louvain, Center for Operations.

I'm trying to fit two kinds of Markov Switching Models to a time series of log-returns using the package MSwM in R.

The models I'm considering are a regression model with only an intercept, and an AR(1) model. Here is the code I'm using. I don't know if it would be straightforward to apply Kim's algorithm in this case with an MA term; with an AR model the algorithm can be used as described in the reference paper.

As an alternative to the smoothed probabilities, Boot and Pick propose the usage of. A Hidden Markov Switching Model or a Hidden Regime Switching Model (both of which are commonly called a Hidden Markov Model) is different.

A Hidden Markov Model (HMM) is a doubly stochastic process. There is an underlying stochastic process that is not observable (hidden), the results of which can be observed (these results being the second.

Can Markov switching models predict excess foreign exchange returns. Working Papers, Federal Reserve Bank of St. Louis View citations (27) See also Journal Article in Journal of Banking & Finance () Foreign exchange volatility is priced in equities Working Papers, Federal Reserve Bank of St.

Louis View citations (1). Markov-switching model of exchange rates outperforms the random walk one. Plenty of followers use regime-switching models in exchange rate estimation and forecasting, and most of them find that these kinds of models either fit exchange rate data well or generate superior forecasts to a random walk model or other models.

Firstly, for understanding the Markov switching models, a nice knowledge of Markov models and the way they work. Most importantly, an idea of time series models and how they work, is very important.

I found this tutorial good enough for getting up to speed with the concept. These models can be applied where the autoregressive parameters, the mean or the intercepts, are regime-dependent (see Krolzing for further details).

The Markov switching-mean according to the notation introduced by Krolzig (): In this model, only the mean is depended on regime. Andel () showed that Markov switching-mean and ARMA.

We use a Markov switching approach in which we account for the presence of two potential regimes: ordinary and turbulent. We also recognize the fact that, even within each regime, the volatility of exchange rate returns is not constant, and we therefore include a GARCH 2See also Berg and Patillo (b).

A more recent paper by Kumar, Moorthy File Size: KB. Markov‐switching Models of Foreign Exchange Rates There is a magnified of impact of changes in stock returns on foreign exchange movements in the second state. This Markov-switching Models of Foreign Exchange Rates Author: Joel Yu Created Date.

B. L. Markov has written: 'Fizicheskoe modelirovanie v metallurgii' -- subject(s): Mathematical models, Metallurgy.Journal of International Economics 36 () North-Holland Can the Markov switching model forecast exchange rates? Charles Engel* Department of Economics, University q(Washington, Seattle, WA 98/95, USA National Bureau of Economic Research, Cambridge, MAUSA Received Septemberrevised version received March A Markov-switching model is fit for 18 Cited by: Grogger: w Markov Forecasting Methods for Welfare Caseloads: Ang and Bekaert: w Regime Switches in Interest Rates: Farmer, Zha, and Waggoner: w Understanding Markov-Switching Rational Expectations Models: Clarida, Sarno, Taylor, and Valente: w The Out-of-Sample Success of Term Structure Models as Exchange Rate Predictors: A Step Beyond: Engel and Hamilton.