This preview shows page 1. Sign up to view the full content.
Unformatted text preview: e) dominate. Hence, forecasts in the down period
may be more useful (see footnote 3 in the chapter). If we look at correct conditional forecasts,
we see that Morrissey is correct 20/35 or 57.14% of the time when the dollar appreciates, but
only 5/15 or 33.33% of the time when the dollar depreciates. According to the Henriksson–
Merton test, the sum of these two proportions should be over 1 for a firm to have market
timing ability. However, the sum in this case is only 90.47%. While Morrissey obviously
dominates Pixie Land Exchange, it is not clear that it is better than FOREX Cures. The
proportions of correct conditional forecasts of FOREX Cures are 12/35 (34.29%) and 12/15
(80%) for a sum of 114.29%. Consequently, only FOREX Cures shows directional
forecasting ability. b. What additional information should Blake try to obtain in order to form a be...
View Full Document