A Dynamic Trading Strategy Approach to Deviations from Uncovered Interest Parity
نویسنده
چکیده
Foreign exchange predictability is explored from the standpoint of generating explicit dynamic strategies. These are used to assess the economic significance and economic magnitude of the predictability present in exchange rates. It is found that considering the true out of sample behavior of certain dynamic foreign exchange strategies greatly reduces the magnitude of previously reported puzzles. ∗The author is grateful to the Alfred P. Sloan Foundation and the University of Wisconsin Graduate School for support. Thiam Hee Ng provided useful research assistance on this project. The author is also grateful to the NBER asset pricing lunch group, and seminar participants at the University of Wisconsin for useful comments on an earlier draft.
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