The use of technical analysis by practitioners in the foreign exchange market contrasts with the ongoing debate among academics on the poor predictive ability of macroeconomic variables. This paper compares these two methods by constructing pools of economic models and technical trading rules and evaluates their in-sample and out-of-sample performance both locally and globally. Results suggest the presence of local forecastability that is overlooked when relying on global measures of predictability. The local predictability is captured using a rolling model selection approach to generate aggregate forecasts across separate pools of economic models and technical trading rules as well as both combined. The out-of-sample results for our aggregate forecasts using pools of economic models fail to beat the random walk as do pools of technical trading models. However combining the two pools of models results in forecasts that beat the random walk for four out of the six sample currencies. This result suggests that exchange rate forecasts can be improved by pooling both sets of models.

This paper examines convergence of bank competition in Middle East and North Africa (MENA) and the impact of bank market power on growth. Using a sample from 16 countries over 2005−14 and forming macro-regions based on oil export allowances to capture intra-region country differences, our results suggest that banking competition has increased over the period under investigation. In addition, using alternative tests, we find clear evidence of convergence in banking competition across the three macro-regions as well as in MENA as a whole. Further, our evidence indicates that financial development facilitates economic growth through greater access to external finance in MENA especially in industrial sectors that are more dependent on external financing. Finally, our analysis points to a positive and significant effect of bank market power on economic growth in MENA and all macro-regions. This is in line with the relationship lending literature which suggests that in a competitive environment banks will be less willing to avail finance to informationally opaque firms.

Given the widespread transfer of trading to electronic platforms we ask whether such trading is more efficient than open outcry. Examining the Crude Palm Oil (CPO) market from 1995:06 to 2008:07, our findings, derived from a novel threshold autoregressive relative efficiency measure, are that efficiency is conditional on: (i) volatility; (ii) the maturity of the futures contract; and (iii) the market trading system. Specifically, when volatility is high, open outcry is superior for shorter maturities and electronic trading for longer maturities. These results suggest an efficiency skew and that there may be benefits to the coexistence of trading mechanisms.

The exchange rate exposure puzzle has remained robust to empirical scrutiny however evidence suggests the puzzle abates when longer horizons are considered. This paper applies inference that is appropriate in a long horizon setting and finds this evidence is illusory.

This paper investigates the profitability of technical trading rules in the foreign exchange market taking into account data snooping bias and transaction costs. A universe of 7650 trading rules is applied to six currencies quoted in U.S. dollars over the 1994:3–2014:12 period. The Barras, Scaillet, and Wermers (2010) false discovery rate method is employed to deal with data snooping and it detects almost all outperforming trading rules while keeping the proportion of false discoveries to a pre-specified level. The out-of-sample results reveal a large number of outperforming rules that are profitable over short periods based on the Sharpe ratio. However, they are not consistently profitable and so the overall results are more consistent with the adaptive markets hypothesis.

The two fundamental functions of a futures market is the price discovery function and the hedging (or risk transfer) function. These functions can be achieved optimally if the market is efficient. This study employs daily data for the Malaysian crude palm oil (CPO) futures from 1997 to 2010 to explore the impact of the time series properties of the futures-spot basis and the cost of carry on futures market unbiasedness. The main result is that the basis of the CPO futures exhibit long memory component. Using interest rate as a proxy for cost of carry, our results support the evidence of the long memory. This evidence of long memory implies the existence of persistence in the data and as consequence; future spot price observations might be predictable on the basis of past realisations of the data. This leads to the rejection of unbiasedness hypothesis and therefore exhibits market inefficiency.

This study models and forecasts the evolution of intraday implied volatility on an underlying EUR-USD exchange rate for a number of maturities. To our knowledge we are the first to employ high frequency data in this context. This allows the construction of forecasting models that can attempt to exploit intraday seasonalities such as overnight effects. Results show that implied volatility is predictable at shorter horizons, within a given day and across the term structure. Moreover, at the conventional daily frequency, intraday seasonality effects can be used to augment the forecasting power of models. The type of inefficiency revealed suggests potentially profitable trading models. (C) 2013 Elsevier B.V. All rights reserved.

This paper provides the first comprehensive study of the horizon effect in tests of the forward rate unbiasedness hypothesis. It estimates Fama regressions employing 1-month through to 10-year horizon data for the five most heavily traded US dollar currency pairs pre-crisis 1980–2006. In contrast with extant studies, it fully deals with the econometric problems of long horizon regressions by means of a novel heteroskedastic- and autocorrelation-consistent bootstrap. The regression results confirm a clear horizon effect in that the slope coefficient approaches unity as the forward contract maturity is extended. The puzzle disappears at the 3-year horizon and beyond for all currencies.

This study implements panel unit root PPP tests accommodating level and trend breaks and cross-sectional dependence. In the presence of breaks there is evidence of a currency and price index effect. Additionally accounting for cross-sectional dependence overturns support for PPP.

Introduction In recent years project finance (PF) has become an increasingly popular method of funding long-term capital-intensive infrastructure projects worldwide, particularly in developing countries. The nature of modern project finance is to use limited or non-recourse syndicated loans to a special purpose vehicle (SPV), where such debt typically represents the lion’s share of the capital structure. The vehicle usually has one objective, such as to build a dam or a pipeline, and therefore avoids some of the decision-making tensions common in the corporate finance literature. In typical project finance syndication there tend to be several types of bank. It is not uncommon for multilateral development banks such as the International Finance Corporation (IFC) of the World Bank group to participate in the lending process; however, the biggest lenders are syndicates of large international banks. These institutions (e.g. Barclays plc and HSBC plc) are private sector entities that are characterized by the broad objectives of profit and shareholder wealth maximization.

This article provides novel evidence on project finance loan pricing using economic and disaggregated political risk determinants. As expected, our findings suggest that the presence of loan guarantees and lower levels of aggregate political risk results in cheaper project finance loans. The evidence in support of disaggregated political risk as a pricing determinant is negligible for developed countries, but significant for developing countries. For the latter we find that loan spreads are negatively related to the effectiveness, quality and strength of a country's legal and institutional systems whilst lower levels of government stability and democratic accountability are associated with lower loan spreads. Our results are consistent with a risk allocation approach to project finance deals.

We examine the forward premium anomaly at horizons of 1 month to 10 years. To overcome the data overlap problem, the estimation procedure used is a heteroscedastic and autocorrelation consistent bootstrap estimation procedure. Our point estimates and bootstrap p-values show that the anomaly disappears over the long horizon. These results are consistent with a behavioural finance approach to the anomaly

We implement panel unit root PPP tests that allow for cross-sectional dependence between 15 OECD economies 1973:03–1998:12. The main variation in the results stems from using the CPI or PPI indexes rather than from ignoring or allowing for cross-sectional dependence.

Symmetry and proportionality is tested for in 15 European economies 1973:04–1998:12 in a panel regression framework that allows for permanent shocks. Support is found for both symmetry and proportionality and thus for general relative PPP in the US dollar but not the German mark panel.

This paper tests for long run PPP using a nonstationary panel regression framework that can accommodate both permanent and temporary shocks. It also uses the common correlated estimator of Pesaran (2003a) to take account of cross sectional dependence. The PPP null in our framework is a unit elasticity of nominal exchange rates with respect to relative prices. Using US dollar and German mark spot rates and the consumer price index for 15 European economies 1977:1-2001:12, we cannot reject the hypothesis that the long run relative price elasticity of exchange rates is unity. While this result supports long run PPP in our European sample, it has to be viewed with caution since some residual cross sectional dependence remains.

This paper tests for long run relative PPP using recently developed nonstationary panel regression estimators that can accommodate cross sectional dependence and both permanent and temporary shocks. The PPP null in our framework is a unit elasticity of nominal exchange rates with respect to relative prices. Using US dollar and deutschemark denominated exchange rates over the 1977:1-20001:12 period for 15 European countries we cannot reject the hypothesis that the long run relative price elasticity is unity. We conclude that long run relative PPP holds in our European sample.