The Information Content of Econometric and Implied Forecasts

James Chong
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James Chong: California State University, Northridge

Journal of Interdisciplinary Economics, 2004, vol. 15, issue 2, 193-216

Abstract: This study examines the information content of various econometric and implied correlation models applied to over-the-counter currency options. To gain insight into the incremental information contribution of each forecast, a regression-based approach is undertaken, that suggests a lack of optimal data employment by the individual forecasts and that value is added when various forecasts are combined. In addition, we also examine which forecast error – correlation or volatility – contributes more to the covariance forecast error by assuming perfect foresight for either correlation or volatility forecast. In this regard, it appears that volatility forecasting has a more accurate methodology than correlation forecasting.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:sae:jinter:v:15:y:2004:i:2:p:193-216

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