Predicting exchange rates using Taylor rule fundamentals: evidence from a portfolio optimisation framework

Simple item page
dc.contributor.authorJobo, Mathe Naleli
dc.date.accessioned2018-12-07T09:11:59Z
dc.date.available2018-12-07T09:11:59Z
dc.date.issued2017
dc.descriptionThesis submitted in fulfillment of the requirements of the degree of Master of Management in Finance and Investment at Wits Business School (WBS) Faculty of Commerce, Law and Management University of the Witwatersrand Johannesburg 2017en_ZA
dc.description.abstractThe paper studies exchange rate predictability using Taylor rule fundamentals in an optimal portfolio framework.The study seeks to link exchange rate dynamics with capital flows. Profit-seeking economic agents are assumed to repatriate funds across borders in response to differentials in rates of return from risky assets of portfolios held. We develop a uncovered portfolio return parity (UPRP) based exchange rate model in which changes in the short-term nominal exchange rate depend on the difference of optimal portfolio returns between two economies. In a two country economy where USA is taken as the foreign country we test the model in 5 countries namely South Africa, South Korea, Brazil, Mexico and Poland. The model is benchmarked against a UIP model and a Random walk model in order to establish whether the study’s extension enriches exchange rate prediction literature. We find that the main UPRP model outperforms the Random walk model in the 12 month horizon for 4 out of 5 countries using CW statistics. For the 1-month horizon the main model is outperformed by the Random walk model in 4 out 5 countries and for the 2-month and 3-month horizons the main model beats the Random walk using CW statistics. Theil’s U statistics also show that with the exception of South Korea, the main model beats the Random walk across all countries in the 3 and 12-month horizons. We conclude that out-of-sample exchange rate forecasting based on an optimal framework and Taylor rule fundamentals produces better nominal exchange rate forecasts relative to the Random walk model and UIP modelen_ZA
dc.description.librarianMT 2018en_ZA
dc.format.extentOnline resource (40 leaves)
dc.identifier.citationJobo, Mathe Naleli (2017) Predicting exchange rates using Taylor rule fundamentals :evidence from a portfolio optimisation framework, University of the Witwatersrand, Johannesburg, <http://hdl.handle.net/10539/26200>
dc.identifier.urihttps://hdl.handle.net/10539/26200
dc.language.isoenen_ZA
dc.subject.lcshReal estate investment--Finance
dc.subject.lcshCapital assets pricing model
dc.titlePredicting exchange rates using Taylor rule fundamentals: evidence from a portfolio optimisation frameworken_ZA
dc.typeThesisen_ZA
Files
Original bundle
Now showing 1 - 2 of 2
No Thumbnail Available
Name:
MNJOBO_MMFI_THESIS_REVISED_FINAL.pdf
Size:
428.92 KB
Format:
Adobe Portable Document Format
Description:
Download
No Thumbnail Available
Name:
MNJOBO_Memo on Thesis revisions.pdf
Size:
148.43 KB
Format:
Adobe Portable Document Format
Description:
Download
License bundle
Now showing 1 - 1 of 1
No Thumbnail Available
Name:
license.txt
Size:
1.71 KB
Format:
Item-specific license agreed upon to submission
Description:
Download
Collections
ETD Collection