ABSTRACT
With a $4 trillion average daily turnover, the foreign exchange market is one of the largest financial markets in the world. 1 Its scope is truly global, as it is a vast decentralized interbank market, whose main participants are central banks, commercial and investment banks, hedge funds, corporations and private economic agents (such as households and self-employed traders). From a historical perspective, the foreign exchange market experienced exponential growth with the advent of the free-floating currency system, which arose from the collapse of the Bretton Woods agreement in 1971. Another milestone in the historical evolution of this global technology-driven market was the emergence of online trading in the mid 1990s. Yet, ever since the seminal papers by Meese and Rogoff (1983a, 1983b), 2 exchange rate prediction based on empirical models has become a difficult art. The matter became even more complex with the advent of the GFC. Foreign exchange markets 3 are more and more unpredictable today; this constitutes one of the rare emerging truths that economists seem to agree upon in a post-crisis scenario.
