Forecasting the volatility of the Australian dollar using high‐frequency data: Does estimator accuracy improve forecast evaluation?

George Bailey and James Steeley

International Journal of Finance & Economics, 2019, vol. 24, issue 3, 1355-1389

Abstract: We compare forecasts of the volatility of the Australian dollar exchange rate to alternative measures of ex post volatility. We develop and apply a simple test for the improvement in the ability of loss functions to distinguish between forecasts when the quality of a volatility estimator is increased. We find that both realized variance and the daily high–low range provide a significant improvement in loss function convergence relative to squared returns. We find that a model of stochastic volatility provides the best forecasts for models that use daily data, and the GARCH(1,1) model provides the best forecast using high‐frequency data.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:24:y:2019:i:3:p:1355-1389

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