Enhancing exchange rate volatility prediction accuracy: Assessing the influence of different indices on the USD/CNY exchange rate

Tao Luo, Lixia Zhang, Huaping Sun and Jiancheng Bai

Finance Research Letters, 2023, vol. 58, issue PB

Abstract: In this paper, the GARCH-MIDAS model is used to empirically study the influence of several uncertainties on the volatility of the CNY-USD forex market. The sample and out-of-sample prediction results show that the nine uncertainty indexes significantly impact the volatility of the CNY-USD forex market and can improve the prediction effect of CNY-USD rate volatility. Then using model confidence set and Direction-of-change test out-of-sample test, it is found that Compared with China's Economic policy uncertainty and China's trade policy uncertainty, US Economic Policy Uncertainty and US trade policy uncertainty can improve the prediction accuracy of CNY-USD forex market volatility.

Keywords: Volatility prediction; Uncertainty; USD/CNY exchange rate (search for similar items in EconPapers)
JEL-codes: C22 C53 G15 G17 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pb:s1544612323008553

DOI: 10.1016/j.frl.2023.104483

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