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Forecasting foreign exchange rates using idiosyncratic volatility

  • Guo, Hui
  • Savickas, Robert
Registered author(s):

Average idiosyncratic stock volatility forecasts the bilateral exchange rates of the US dollar against major foreign currencies in and out of sample. The US dollar tends to appreciate after an increase in US idiosyncratic volatility. Similarly, ceteris paribus, German and Japanese idiosyncratic volatilities positively and significantly correlate with future US dollar prices of the Deutsche mark and the Japanese yen, respectively. Our results suggest that exchange rates are predictable.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 32 (2008)
Issue (Month): 7 (July)
Pages: 1322-1332

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Handle: RePEc:eee:jbfina:v:32:y:2008:i:7:p:1322-1332
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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