The Importance of Global Risk Sentiment for Short-term Forecasting of Emerging Markets Currencies. Empirical Evidence

Student: Zhirnov Grigory

Faculty: International College of Economics and Finance

Educational Programme: Financial Economics (Master)

Year of Graduation: 2020

In this research the author explores the importance of global risk perception for short-term performance of emerging market currencies. The author introduce the EM sentiment index, which gives an investor a convenient way to measure risk sentiment on global financial markets and to compare different periods of market volatility. Moreover, using time series conditional and unconditional forecasting of 5 exchange rates (USDRUB, USDCNY, USDPLN, USDBRL and USDINR), the author empirically shows that risk sentiment is the key factor for short-term performance of EM currencies. The main result of this work is that risk sentiment, measured by the constructed EM sentiment index, could be used to forecast any of five mentioned currencies in the short-run period regardless of many country-specific factors.

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