0531234 20240103224251.920200728235959.9 Kyoto Kyoto Institute of Economic Studies 2020 31 s. E KIER Discussion Papers Series 1035 exchange rate selective attention news dynamic model averaging cav_un_auth*0394148 35 Kapounek S. CZ cav_un_auth*0017494 35 Kučerová Z. CZ cav_un_auth*0312139 30 Kočenda Evžen UTIA-B Ekonometrie Department of Econometrics E E Department of Econometrics CZ Ústav teorie informace a automatizace AV ČR, v. v. i. http://library.utia.cas.cz/separaty/2020/E/kocenda-0531234.pdf We analyze the exchange rate forecasting performance under the assumption of selective attention. Although currency markets react to a variety of different information, we hypothesize that market participants process only a limited amount of information. Our analysis includes more than 100,000 news articles relevant to the six most-traded foreign exchange currency pairs for the period of 1979–2016. We employ a dynamic model averaging approach to reduce model selection uncertainty and to identify time-varying probability to include regressors in our models. Our results show that considering selective attention improves forecasting results. Specifically, we document a growing impact of foreign trade and monetary policy news on the Euro/United States of America dollar currency pair following the global financial crisis. Overall, our results point to the existence of selective attention in the case of most currency pairs. AH 50000 50200 50206 2021 3 RVO:67985556 http://hdl.handle.net/11104/0310090 S 2020 2020 Kyoto Kyoto Institute of Economic Studies