Business Cycle and Value Insights for Forecasting Currency Returns

 

We examine an economic environment signal based on the business cycle and value signals based on purchasing power parity and equilibrium exchange rate theory to forecast currency returns. We explain the theory behind each insight, the data and signal construction, back-test investment performance empirics, robustness checks and potential weaknesses.

Keywords: Currency returns, Forecasting, Backtests, Business cycle, Equilibrium exchange rates, Purchasing power parity