FX volatility forecasts and the informational content of market data for volatility
The paper examines the medium-term forecasting ability of several alternative models of currency volatility. The data period covers more than eight years of daily observations, January 1991 to March 1999, for the spot exchange rate, 1- and 3-month volatility of the DEM/JPY, GBP/DEM, GBP/USD, USD/CHF, USD/DEM and USD/JPY. Comparing with the results of 'pure' time series models, the reported work investigates whether market implied volatility data can add value in terms of medium-term forecasting accuracy. This is done using data directly available from the marketplace in order to avoid the potential biases arising from 'backing out' volatility from a specific option pricing model. On the basis of the over 34 000 out-of-sample forecasts produced, evidence tends to indicate that, although no single volatility model emerges as an overall winner in terms of forecasting accuracy, the 'mixed' models incorporating market data for currency volatility perform best most of the time.
Volume (Year): 9 (2003)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/REJF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/REJF20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schwert, G. William, 1989.
"Business cycles, financial crises, and stock volatility,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 31(1), pages 83-125, January.
- Schwert, G.W., 1988. "Business Cycles, Financial Crises And Stock Volatility," Papers 88-06, Rochester, Business - General.
- G. William Schwert, 1989. "Business Cycles, Financial Crises, and Stock Volatility," NBER Working Papers 2957, National Bureau of Economic Research, Inc.
- Ghysels, E. & Harvey, A. & Renault, E., 1995. "Stochastic Volatility," Papers 95.400, Toulouse - GREMAQ.
- Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche 9613, Universite de Montreal, Departement de sciences economiques.
- Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche 9613, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Eric Ghysels & Andrew Harvey & Éric Renault, 1995. "Stochastic Volatility," CIRANO Working Papers 95s-49, CIRANO.
- GHYSELS, Eric & HARVEY, Andrew & RENAULT, Eric, 1995. "Stochastic Volatility," CORE Discussion Papers 1995069, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- West, Kenneth D. & Cho, Dongchul, 1995. "The predictive ability of several models of exchange rate volatility," Journal of Econometrics, Elsevier, vol. 69(2), pages 367-391, October.
- West, K.D. & Cho, D., 1993. "The Predictive Ability of Several Models of Exchange Rate Volatility," Working papers 9317, Wisconsin Madison - Social Systems.
- West, K.D. & Cho, D., 1993. "The Predictive Ability of Several Models of Exchange Rate Volatility," Working papers 9317r, Wisconsin Madison - Social Systems.
- Kenneth D. West & Dongchul Cho, 1994. "The Predictive Ability of Several Models of Exchange Rate Volatility," NBER Technical Working Papers 0152, National Bureau of Economic Research, Inc.
- Andrew Harvey & Esther Ruiz & Neil Shephard, 1994. "Multivariate Stochastic Variance Models," Review of Economic Studies, Oxford University Press, vol. 61(2), pages 247-264.
- Baillie, Richard T & Bollerslev, Tim, 2002. "The Message in Daily Exchange Rates: A Conditional-Variance Tale," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 60-68, January.
- Baillie, Richard T & Bollerslev, Tim, 1989. "The Message in Daily Exchange Rates: A Conditional-Variance Tale," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 297-305, July.
- Tom Doan, "undated". "RATS program to replicate Baillie and Bollerslev GARCH models with day-of-week effects," Statistical Software Components RTZ00172, Boston College Department of Economics.
- Martin, Deryl W. & French, Dan W., 1987. "The characteristics of interest rates and stock variances implied in option prices," Journal of Economics and Business, Elsevier, vol. 39(3), pages 279-288, August.
- Baillie, Richard T. & Bollerslev, Tim, 1992. "Prediction in dynamic models with time-dependent conditional variances," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 91-113.
- Baillie, R.T. & Bollerslev, R.T., 1990. "Prediction In Dynamic Models With Time Dependent Conditional Variances," Papers 8815, Michigan State - Econometrics and Economic Theory.
- Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-1153, December.
- G. William Schwert, 1988. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
- Latane, Henry A & Rendleman, Richard J, Jr, 1976. "Standard Deviations of Stock Price Ratios Implied in Option Prices," Journal of Finance, American Finance Association, vol. 31(2), pages 369-381, May.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Chiras, Donald P. & Manaster, Steven, 1978. "The information content of option prices and a test of market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 213-234.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
- Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
- Lamoureux, Christopher G & Lastrapes, William D, 1993. "Forecasting Stock-Return Variance: Toward an Understanding of Stochastic Implied Volatilities," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 293-326.
- Christian Dunis & Andre Keller, 1995. "Efficiency tests with overlapping data: an application to the currency options market," The European Journal of Finance, Taylor & Francis Journals, vol. 1(4), pages 345-366.
- Kroner, Kenneth F. & Kneafsey, Devin P. & Claessens, Stijn & DEC, 1993. "Forecasting volatility in commodity markets," Policy Research Working Paper Series 1226, The World Bank. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:9:y:2003:i:3:p:242-272. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.