Title

Performance, Bias, and Efficiency of Foreign Exchange Correlation Forecasts

Department

Economics, Finance, & Quantitative Analysis

Document Type

Article

Publication Date

Fall 2008

Abstract

This paper evaluates the performance, bias, and the efficiency of option-implied and return-based correlation measures using 12 years of daily data on foreign exchange and over-the-counter (OTC) currency option. The sample includes five years of rates for the Polish zloty and the Czech koruna with respect to the euro and the U.S. dollar. The results show that implied correlation is a good predictor of realized correlation and is, generally, unbiased and efficient.

Journal

Review of Futures Markets

Journal ISSN

0898-011X

Volume

17

Issue

2