Hence forecasts in the down period may be more useful

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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...
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This note was uploaded on 10/20/2013 for the course FNCE 6300 taught by Professor Robet during the Fall '12 term at University of Colorado Denver.

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