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Conditional density and value‐at‐risk prediction of Asian currency exchange rates
Author(s) -
Mittnik Stefan,
Paolella Marc S.
Publication year - 2000
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/1099-131x(200007)19:4<313::aid-for776>3.0.co;2-e
Subject(s) - econometrics , us dollar , currency , autoregressive conditional heteroskedasticity , value at risk , liberian dollar , economics , value (mathematics) , exchange rate , sample (material) , series (stratigraphy) , goodness of fit , statistics , mathematics , risk management , volatility (finance) , monetary economics , finance , paleontology , chemistry , chromatography , biology
We first demonstrate the simultaneous need for both more general GARCH structures and non‐normal innovation distributions for modelling the returns on certain return series such as the highly volatile exchange rates on East Asian currencies against the US dollar. This is accomplished not only via in‐sample goodness‐of‐fit criteria, but also in terms of the precision of Value‐at‐Risk calculations made on out‐of‐sample density predictions. Second, a forecasting strategy using weighted maximum likelihood estimation is proposed. We show that it gives rise to considerably improved forecast performance over longer horizons. Copyright © 2000 John Wiley & Sons, Ltd.