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...

This paper studies predictability of currency returns over the period 1971-2006. To assess the economic significance of predictability, we construct an upper bound on the explanatory power of predictive regressions. The upper bound is motivated by quot;no good-dealquot; restrictions that rule...