The Role of Economic Uncertainty in Forecasting Exchange Rate Returns and Realized Volatility: Evidence from Quantile Predictive Regressions
Christina Christou (),
Rangan Gupta (),
Christis Hassapis () and
Tahir Suleman ()
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Christina Christou: School of Economics and Management, Open University of Cyprus, Latsia, Cyprus
Christis Hassapis: School of Economics and Management, Department of Economics, University of Cyprus, Nicosia, Cyprus
Tahir Suleman: School of Economics and Finance, Victoria University of Wellington and School of Business, Wellington Institute of Technology
No 201774, Working Papers from University of Pretoria, Department of Economics
In this paper, we investigate whether the news-based measure of economic policy uncertainty (EPU), can be used to forecast exchange rate returns and volatility using a quantile regression approach, which accounts for persistence and endogeneity, using data from thirteen different countries. Our main findings suggest that: (i) EPU is useful for forecasting exchange rate returns and volatility, (ii) forecasting ability-quantile order relationships exhibit U-shape, possibly asymmetric form around the median and (iii) asymmetries are more pronounced in the case of forecasting volatility.
Keywords: Economic Policy Uncertainty; Exchange Rate Returns; Volatility; Quantile Predictive Regressions; Developed and Emerging Markets (search for similar items in EconPapers)
JEL-codes: C32 C53 E60 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for and nep-mac
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Journal Article: The role of economic uncertainty in forecasting exchange rate returns and realized volatility: Evidence from quantile predictive regressions (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201774
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