Currency exchange rate predictability: The new power of Bitcoin prices

被引:4
作者
Feng, Wenjun [1 ]
Zhang, Zhengjun [2 ]
机构
[1] Beijing Jiaotong Univ, Sch Econ & Management, 3 Shangyuancun, Beijing 100044, Peoples R China
[2] Univ Wisconsin Madison, Dept Stat, 1300 Univ Ave, Madison, WI 53706 USA
基金
美国国家科学基金会; 中国博士后科学基金;
关键词
Bitcoin; Exchange rate; Present -value model; COMMODITY PRICES; RATE MODELS; SAFE HAVEN; TESTS; FUNDAMENTALS; RISK; CRYPTOCURRENCIES; COINTEGRATION; ACCURACY; MARKETS;
D O I
10.1016/j.jimonfin.2023.102811
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
We show that Bitcoin prices have surprisingly predictive power for nominal currency exchange rates, both in-sample and out-of-sample. The predictability follows from the fact that Bitcoin prices are forward-looking: Bitcoin efficiently incorporates expectations of currency exchange rates and their drivers, as exchange rates serve as a fundamental of Bitcoin. We examine the Bitcoin-based exchange rate prediction model in the autoregres-sive distributed lag (ADL) specification and the error correction specification. Forecasts based on both specifications outperform different benchmarks for some of the exchange rates. The outperformance is most pronounced at the daily horizon using the ADL model. Bitcoin-based forex trading strategies generate Sharpe ratio gains relative to the US risk -free rate and the carry trade. Bitcoin returns incorporate extra knowledge of future interest rate differentials after controlling for lagged exchange rate movements. Our result is inspir-ing for currency market participants, given the well-documented difficulty in exchange rate prediction.(c) 2023 Elsevier Ltd. All rights reserved.
引用
收藏
页数:24
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