We derive an Optimal Hedge Ratio (OHR) under the mean-variance-skewness framework, where investors are allowed to have heterogeneous preference for skewness. Allowing heterogeneous preference for skewness changes the investors optimal hedging decisions. Using spot and futures exchange rate data,...

Recently, independent of each other, there has been interest in (i) time-variation in higher-order moments; (ii) idiosyncratic skewness and predictability of skewness in the asset pricing context; and (iii) robust measures of skewness and kurtosis. The second literature questions the usefulness...

Forecasting exchange rate movements is extremely difficult. While the usual forecast requires determining the size and sign of change, we investigate if the direction of change alone is easier to forecast. The accuracy rate of monthly forecasts based on an economic model is compared with random...