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, 15 (4). pp. 729-750. doi:10.1016/j.jempfin.2007.12.001 ISSN 0927-5398.

Preview

PDF WRAP_Clements_-cgkv_jempfin_r1.pdf - Draft Version - Requires a PDF viewer. Download (625Kb)

Request Changes to record.

Abstract

Quantile forecasts are central to risk management decisions because of the widespread
use of Value-at-Risk. 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:	0927-5398
Official Date:	2008
Dates:	Date Event 2008 Published
Volume:	15
Number:	4
Page Range:	pp. 729-750
DOI:	10.1016/j.jempfin.2007.12.001
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Description:	Version accepted by publisher (post-print, after peer review, before copy-editing).

Data sourced from Thomson Reuters' Web of Knowledge

Request changes or add full text files to a record

Repository staff actions (login required)

View Item

Downloads