Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/235271
Authors: 
Kapounek, Svatopluk
Kocenda, Evžen
Kucerová, Zuzana
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8901
Abstract: 
We analyze the exchange rate forecasting performance under the assumption of selective attention. Although currency markets react to a variety of different information, we hypothesize that market participants process only a limited amount of information. Our analysis includes more than 100,000 news articles relevant to the six most-traded foreign exchange currency pairs for the period of 1979–2016. We employ a dynamic model averaging approach to reduce model selection uncertainty and to identify time-varying probability to include regressors in our models. Our results show that smaller sizes models accounting for the presence of selective attention offer improved fitting and forecasting results. Specifically, we document a growing impact of foreign trade and monetary policy news on the euro/dollar exchange rate following the global financial crisis. Overall, our results point to the existence of selective attention in the case of most currency pairs.
Subjects: 
exchange rate
selective attention
news
forecasting
dynamic model averaging
JEL: 
F33
G41
C11
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.