Model-free evaluation of directional predictability in foreign exchange markets, страница 13

The statistics for interest rate differentials, reported in the last panel in Table I, are computed over the same period to match the ending date of the returns in both spot and futures markets. In general, interest rate differentials have a sizeable non-zero sample mean: the mean interest rate differentials of AD, CD and BP (vis-a`-vis USD) are negative, which implies risk-free interest rates for AD, CD and BP are, on average, higher than that for USD. In contrast, the mean interest rate differentials of JY, SF and DM (vis-a`-vis USD) are positive (particularly for JY). Compared to the exchange rate changes, interest rate differentials are much smoother and less volatile. It remains, however, to see whether the relatively tranquil nature of interest rate differentials can be used to forecast the direction of foreign exchange returns. For interest rate differentials, there is evidence of negative skewness, but there is no clear evidence of excess kurtosis (except for AD).

5.  EMPIRICAL EVIDENCE

5.1.  Directional Predictability of Changes in a Single Currency

We now use the generalized cross-spectral (GCS) tests to examine directional predictability of individual currency returns and its possible sources. We first consider the following direction indicators:

                                             Z^C_t c          > c, and Z_t cc

Table I. Summary statistics for sample data

Notes:

1.  Starting date for all spots and futures is December 1 1987.

2.  Obs., sample size (T); SD, standard deviation; Skew., skewness; Kurt., kurtosis.

3.   are the first-order sample autocorrelation in returns and squared returns, respectively.