Forecasting Volatility in Developing Countries' Nominal Exchange Returns

Antonakakis, Nikolaos and Darby, Julia (2012): Forecasting Volatility in Developing Countries' Nominal Exchange Returns.

Abstract

This paper identifies the best models for forecasting the volatility of daily exchange returns of developing countries. An emerging consensus in the recent literature focusing on industrialised counties has noted the superior performance of the FIGARCH model in the case of industrialised countries, a result that is reaffirmed here. However, we show that when dealing with developing countries’ data the IGARCH model results in substantial gains in terms of the in-sample results and out-of-sample forecasting performance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange rate volatility; estimation; forecasting; developing countries
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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