Quantile Forecasts of Daily Exchange Rate Returns from Forecasts of Realized Volatility

Michael Clements, Ana Galvão and Jae Kim

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

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 ?ndings are that the HAR 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.

Keywords: realized volatility; quantile forecasting; MIDAS; HAR; exchange rates (search for similar items in EconPapers)
JEL-codes: C32 C53 F37 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets, nep-for, nep-ifn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Quantile forecasts of daily exchange rate returns from forecasts of realized volatility (2008)
Working Paper: Quantile Forecasts of Daily Exchange Rate Returns from Forecasts of Realized Volatility (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:777

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