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Casullo Financial Services. Ya-Ling Chuang (Ambrosia) Udayan Shah Scott Holtorf Supradipta Datta. Casullo Financial Services. Exchange Rate Projections For Nike Inc. Casullo Financial Services. Four Models: The Purchase Power Parity Model (PPP) The Monetary (Asset) Approach
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Casullo Financial Services Ya-Ling Chuang (Ambrosia) Udayan Shah Scott Holtorf Supradipta Datta
Casullo Financial Services Exchange Rate Projections For Nike Inc.
Casullo Financial Services Four Models: • The Purchase Power Parity Model (PPP) • The Monetary (Asset) Approach • Forward Exchange Rate Model • Ad-hoc Model
Casullo Financial Services The PPP Model SFt+1 = SFt * [ 1 + sFt+1] MAE 0fε = SFt+1 – St+1 In –sample: • sFt= Id,t – If,t where Id,t+1 = CPId,t+1/CPId,t • SFt = St
Casullo Financial Services The PPP Model SFt+1 = SFt * [ 1+ sFt+1] out-of-sample: • Regress the equation It+1 = α0 + α1(It) + εt • sFt+1 = Id,t+1 – If,t+1
Casullo Financial Services The Monetary (Asset) Approach SFt+1 = SFt * [ 1+ sFt+1] MAE 0fε = SFt+1 – St+1 In –sample: • st,T = yf,T – yd,T +mSd,T – mSf,T • SFt = St
Casullo Financial Services The Monetary (Asset) Approach SFt+1 = SFt * [ 1+ sFt+1] MAE of ε = SFt+1 – St+1 out-of-sample: After Regression Analysis sFt+1 = α0 + α1(yf,t – yd,t) + α2(md,t – mf,t)
Casullo Financial Services Expectation Hypothesis SFt+1 = SFt * [1 + sFt] MAE of ε = SFt – St in-sample: • sFt = (id,t – if,t) * T/360 • SFt = St
Casullo Financial Services Expectation Hypothesis SFt+1 = SFt * [1 + sFt] MAE of ε = SFt – St out-of-sample: • sFt = (id,t – if,t) * T/360 • Use of random walk in estimating (id,t – if,t)
Casullo Financial Services Ad-hoc Model SFt+1 = SFt * [1 + sFt+1] MAE of ε = SFt – St in-sample: • sFt = α + ß1(Id,t – If,t) + ß2 [(id,t – if,t) * T/360] + ß3 (yd,t – yf,t) + εt • SFt = St
Casullo Financial Services Ad-hoc Model SFt+1 = SFt * [1 + sFt+1] MAE of ε = SFt – St out-of-sample: • Random Walk used in estimating (Id,t – If,t), (id,t – if,t) and (yd,t – yf,t).
