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Forecasting Chinese industry return volatilities with RMB/USD exchange rate

Zhifeng Dai, Huan Zhu and Xiaodi Dong

Physica A: Statistical Mechanics and its Applications, 2020, vol. 539, issue C

Abstract: The purpose of this paper is to analyze whether the fluctuations of RMB/USD exchange rate can predict the Chinese industry return volatilities during post-financial crisis period. Our in-sample results show there is significant Granger causality from RMB/USD exchange rate fluctuations to China’s industry return volatilities. The out-of-sample results also indicate the RMB/USD exchange rate fluctuations extracts significantly useful information from the predictors. Further analysis about the energy industry shows that simple linear regression is sufficient for capturing predictive relationships between RMB/USD exchange rate fluctuations and energy industry volatility.

Keywords: Industry return volatility; RMB/USD exchange rate fluctuation; Prediction ability; Forecasting (search for similar items in EconPapers)
JEL-codes: C32 C58 E32 Q41 Q4 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.physa.2019.122994

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