This paper provides evidence suggesting that currency returns are not predictable. We find that the Bilson-Fama regression is not only unstable, but the instability is triggered by novel historical events. The novelty of the events implies that the structural change underpinning returns cannot...

This paper re-examines the empirical performance of the portfolio balance approach to currency returns. It considers the implications of two alternative specifications of preferences: one based on expected utility theory and the other on prospect theory. It also uses survey data to estimate...