Scheduled macroeconomic news announcements and Forex volatility forecasting

Tomáš Plíhal

Journal of Forecasting, 2021, vol. 40, issue 8, 1379-1397

Abstract: In the world of finance, the volatility of asset prices plays a crucial role, for example, in portfolio optimization or the valuation of derivatives. Macroeconomic news announcements are among the most important factors that influence volatility in financial markets. This paper focuses on the effect of scheduled macroeconomic news announcements on the realized volatility of the most traded currency pairs, EUR/USD, GBP/USD, and USD/JPY, from 2009 to 2017. Realized volatility is analysed on a daily basis, and it is also decomposed into continuous and jump components that are analysed separately. We focus on out‐of‐sample forecasting and provide strong evidence that scheduled macroeconomic news announcements play a statistically significant role in volatility models. Forecasting accuracy is improved by up to 12.4%. These results are important for future practical applications in various areas of finance.

Date: 2021
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https://doi.org/10.1002/for.2773

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jforec:v:40:y:2021:i:8:p:1379-1397

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