Forecasting Exchange Rate Volatility: Suggestions for Further Research

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PLÍHAL Tomáš

Rok publikování 2016
Druh Článek ve sborníku
Konference European Financial Systems 2016
Fakulta / Pracoviště MU

Ekonomicko-správní fakulta

Citace
www http://is.muni.cz/do/econ/sborniky/2016/EFS2016-Proceedings_final_September_12_final_web.pdf
Obor Ekonomie
Klíčová slova exchange rate volatility; forecasting volatility; GARCH model; HAR-RV model
Popis The market volatility plays an important role in the world of finance and it is essential part of risk management, asset management and valuation of derivatives. Several models for volatility forecasting exist. The aim of this paper is to provide a theoretical background for further research in forecasting exchange rate volatility. The first part describes essential information about market volatility and its importance. Analysis of commonly used methods for volatility forecasting follows along with a comparison of individual econometric models. Empirical literature, which measures predicting abilities of different models on the real data from the foreign exchange market, is also examined. According to our results, one of the best model for forecasting exchange rate volatility is simple GARCH(1,1) model. However, the latest empirical evidence highlights relatively new HAR-RV model which is able to provide even better results.
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