flexible approach to modeling currency returns. We decompose the currency returns into multiplicative sign and absolute return … components, which exhibit much greater predictability than raw returns. We allow the two components to respond to currency …-adjusted) profitability when trading individual currencies or forming currency portfolios based on the predicted returns from the …

This paper studies predictability of currency returns over time and the extent to which it is captured by trading rules … commonly used in currency markets. We consider the strategies that an investor endowed with rational expectations could have … pursued to exploit out-of-sample currency predictability and generate abnormal returns. We find a close relation between these …