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Forecasting the volatility of the A ustralian dollar using high‐frequency data: D oes estimator accuracy improve forecast evaluation?
Author(s) -
Bailey George,
Steeley James M.
Publication year - 2019
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1723
Subject(s) - estimator , econometrics , volatility (finance) , forward volatility , economics , stochastic volatility , realized variance , autoregressive conditional heteroskedasticity , liberian dollar , statistics , mathematics , finance
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.