Forecasting foreign exchange rates using idiosyncratic volatility

Journal of Banking and Finance

Volumn 32, Issue 7, 2008, Pages 1322-1332

  Guo, Hui ^a   Savickas, Robert ^b  

^a UNIVERSITY OF CINCINNATI   (United States)

^b GEORGE WASHINGTON UNIVERSITY   (United States)

Author keywords

Average idiosyncratic stock volatility; Bootstrap; Data mining; Exchange rate predictability; Monetary model; Out of sample forecast

Indexed keywords

EID: 43949086226     PISSN: 03784266     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jbankfin.2007.11.006     Document Type: Article

References (43)

1. Almeida A., Goodhart C., and Payne R. The Effects of macroeconomic news on high frequency exchange rate behavior. Journal of Financial and Quantitative Analysis 33 (1998) 383-408
2. Andersen, T., Bollerslev, T., Diebold, F., Vega, C., 2004. Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets. Unpublished Working Paper.
3. Barro R. The stock market and investment. Review of Financial Studies 3 (1990) 115-131
4. Berkowitz J., and Giorgianni L. Long-horizon exchange rate predictability?. Review of Economics and Statistics 83 (2001) 81-91
5. Bernanke B., and Blinder A. The federal funds rate and the channels of monetary transmission. American Economic Review 82 (1992) 901-921
6. Bilson J. Rational Expectations and the Exchange Rate. In: Frenkel J.A., and Johnson H.G. (Eds). The Economics of Exchange Rates: Selected Studies (1978), Addison-Wesley, Reading, MA 75-96
7. Boudoukh, J., Richardson, M., Whitelaw, R., 2005. The information in long-maturity forward rates: Implications for exchange rates and the forward premium anomaly. Unpublished Working Paper, NYU.
8. Campbell J. Stock returns and the term structure. Journal of Financial Economics 18 (1987) 373-399
9. Campbell J., and Perron P. Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots. In: Blanchard O., and Fischer S. (Eds). NBER Macroeconomics Annual (1991), MIT Press, Cambridge 141-201
10. Campbell J., Lo A., and MacKinlay C. The Econometrics of Financial Markets (1997), Princeton University Press, Princeton, NJ
11. Campbell J., Lettau M., Malkiel B., and Xu Y. Have individual stocks become more volatile? An empirical exploration of idiosyncratic risk. Journal of Finance 56 (2001) 1-43
12. Clarida R., and Taylor M. The term structure of forward exchange premiums and the forecastability of spot exchange rates: Correcting the errors. Review of Economics and Statistics 79 (1997) 353-361
13. Clark T., and McCracken M. Tests of equal forecast accuracy and encompassing for nested models. Journal of Econometrics 105 (2001) 85-110
14. Comin, D., Philippon, T., 2005. The rise in firm-level volatility: Causes and consequences. In: Gertler, M., Rogoff, K. (Eds.), NBER Macroeconomics Annual, 20.
15. Dornbusch R. Expectations and exchange rate dynamics. Journal of Political Economy 84 (1976) 1161-1176
16. Engel C., and West K. Exchange rates and fundamentals. Journal of Political Economy 113 (2005) 485-517
17. Evans, M., Lyons, R., 2005a. Meese-Rogoff redux: Micro-based exchange rate forecasting. In: American Economic Review Papers and and Proceedings, forthcoming.
18. Evans, M., Lyons, R., 2005b. Exchange Rates Fundamentals and Order Flow. Unpublished Working Paper, Georgetown University.
19. Fama E., and French K. Business conditions and expected returns on stocks and bonds. Journal of Financial Economics 25 (1989) 23-49
20. Faust J., Rogers J., and Wright J. Exchange rate forecasting: The errors we've really made. Journal of International Economics 60 (2003) 35-59
21. Ferson W., Sarkissian S., and Simin T. Spurious regressions in financial economics?. Journal of Finance 58 (2003) 1393-1414
22. Frenkel J. A monetary approach to the exchange rate: Doctrinal aspects and empirical evidence. Scandinavian Journal of Economics 78 (1976) 200-224
23. Goodhart C., Hall S., Henry S., and Pesaran B. News effects in a high-frequency model of the sterling-dollar exchange rate. Journal of Applied Econometrics 8 (1993) 1-13
24. Goyal A., and Santa-Clara P. Idiosyncratic risk matters!. Journal of Finance 58 (2003) 975-1007
25. Guo, H., Savickas, R. 2007. Average Idiosyncratic Volatility in G7 Countries. Review of Financial Studies, forthcoming.
26. Guo H., and Whitelaw R. Uncovering the risk-return relation in the stock market. Journal of Finance 61 (2006) 1433-1463
27. Hong Y., and Lee T. Inference on predictability of foreign exchange rates via generalized spectrum and nonlinear time series models. Review of Economics and Statistics 85 (2003) 1048-1062
28. Kilian L. Exchange rates and monetary fundamentals: What do we learn from long-horizon regressions?. Journal of Applied Econometrics 14 (1999) 491-510
29. Krolzig M., and Hendry D. Computer automation of general-to-specific model selection procedures. Journal of Economic Dynamics and Control 25 (2001) 831-866
30. Lettau M., and Ludvigson S. Consumption, aggregate, wealth and expected stock returns. Journal of Finance 56 (2001) 815-849
31. Lettau M., and Ludvigson S. Time-varying risk-premia and the cost of capital: An alternative implication of the Q theory of investment. Journal of Monetary Economics 49 (2002) 31-66
32. Lilien D. Sectoral shifts and cyclical unemployment. Journal of Political Economy 90 (1982) 777-793
33. Loungani P., Rush M., and Tave W. Stock market dispersion and unemployment. Journal of Monetary Economics 25 (1990) 367-388
34. Mark N. Exchange rates and fundamentals: Evidence on long-horizon predictability. American Economic Review 85 (1995) 201-218
35. McCracken, M., 1999. Asymptotics for out-of-sample tests of causality. Unpublished Working Paper, Louisiana State University.
36. Meese R. Currency fluctuations in the Post-Bretton woods era. Journal of Economic Perspective (1990) 117-134
37. Meese R., and Rogoff K. Empirical exchange rate models of the 1970's: Do they fit out of sample?. Journal of International Economics 14 (1983) 3-24
38. Merton R. On estimating the expected return on the market: An exploratory investigation. Journal of Financial Economics 8 (1980) 323-361
39. Mussa M. The exchange rate, the balance of payments, and monetary and fiscal policy under a regime of controlled floating. Scandinavian Journal of Economics 78 (1976) 229-248
40. Ng S., and Perron P. Unit root tests in ARMA models with data dependent methods for the selection of the Truncation lag. Journal of the American Statistical Association 90 (1995) 268-281
41. Rapach D., and Wohar M. In-sample vs. out-of-sample tests of stock return predictability in the context of data mining. Journal of Empirical Finance 13 (2006) 231-247
42. Stock J., and Watson M. Forecasting output and inflation: The role of asset prices. Journal of Economic Literature 41 (2003) 788-829
43. Sweeney, R., 2006. Mean reversion in G-10 nominal exchange rates, Journal of Financial and Quantitative Analysis. forthcoming.