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Can the intermediary capital risk predict foreign exchange rates?

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  • Yin, Libo

Abstract

The intermediary capital risk (ICR) is recently perceived as an important indicator of economic activities and risk premiums. In this paper, we provide individual time-series predictability of ICR for exchange rates of twelve major currencies against US dollar, in both in-sample and out-of-sample settings. This predictive pattern is robust when controlling for macroeconomic variables. Further analysis shows that a simple linear regression is sufficient to capture the predictive performance. Our results imply that the ICR factor is a useful predictor for exchange rates.

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  • Yin, Libo, 2020. "Can the intermediary capital risk predict foreign exchange rates?," Finance Research Letters, Elsevier, vol. 37(C).
    • Handle: RePEc:eee:finlet:v:37:y:2020:i:c:s1544612319305367
    DOI: 10.1016/j.frl.2019.101349
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    2. Jiang, Xue & Li, Sai-Ping & Mai, Yong & Tian, Tao, 2022. "Study of multinational currency co-movement and exchange rate stability base on network game," Finance Research Letters, Elsevier, vol. 47(PA).

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