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Quantile forecasts of daily exchange rate returns from forecasts of realized volatility
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Clements, Michael P., Galvão, Ana Beatriz and Kim, Jae H.. (2008) Quantile forecasts of daily exchange rate returns from forecasts of realized volatility. Journal of Empirical Finance, Vol.15 (No.4). pp. 729750. ISSN 09275398

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Official URL: http://dx.doi.org/10.1016/j.jempfin.2007.12.001
Abstract
Quantile forecasts are central to risk management decisions because of the widespread
use of ValueatRisk. A quantile forecast is the product of two factors: the model used to
forecast volatility, and the method of computing quantiles from the volatility forecasts. In
this paper we calculate and evaluate quantile forecasts of the daily exchange rate returns
of five currencies. The forecasting models that have been used in recent analyses of the
predictability of daily realized volatility permit a comparison of the predictive power of
different measures of intraday variation and intraday returns in forecasting exchange rate
variability. The methods of computing quantile forecasts include making distributional
assumptions for future daily returns as well as using the empirical distribution of predicted
standardized returns with both rolling and recursive samples. Our main findings are that the
Heterogenous Autoregressive model provides more accurate volatility and quantile forecasts
for currencies which experience shifts in volatility, such as the Canadian dollar, and that
the use of the empirical distribution to calculate quantiles can improve forecasts when there
are shifts.
Item Type:  Journal Article 

Subjects:  H Social Sciences > HF Commerce H Social Sciences > HB Economic Theory 
Divisions:  Faculty of Social Sciences > Economics 
Library of Congress Subject Headings (LCSH):  Foreign exchange rates, International finance, Time series analysis 
Journal or Publication Title:  Journal of Empirical Finance 
Publisher:  Elsevier 
ISSN:  09275398 
Official Date:  August 2008 
Volume:  Vol.15 
Number:  No.4 
Page Range:  pp. 729750 
Identification Number:  10.1016/j.jempfin.2007.12.001 
Status:  Peer Reviewed 
Access rights to Published version:  Open Access 
Description:  Version accepted by publisher (postprint, after peer review, before copyediting). 
References:  Andersen, T.G. and Bollerslev, T. (1998). Answering the skeptics: yes, standard volatility models do provide accurate forecasts. International Economic Review, 39, pp. 885–905. 
URI:  http://wrap.warwick.ac.uk/id/eprint/90 
Data sourced from Thomson Reuters' Web of Knowledge
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