We empirically investigate the role of prospect theory in the foreign exchange market. Using the historical distribution of exchange rate changes, we construct a currency-level measure of prospect theory value and find that it negatively forecasts future currency excess returns. High prospect...

We investigate the real effects of foreign exchange (FX) uncertainty on an important economic growth engine-technological innovation. In a sample consisting of 55 countries, we measure FX uncertainty using the unexpected FX volatility and then show that heightened FX uncertainty is associated...