Forecasting Exchange Rate Volatility at High Frequency Data: Is the Euro Different?

33 Pages Posted: 9 Mar 2007

See all articles by Georgios E. Chortareas

Georgios E. Chortareas

University of Athens - Faculty of Economics; University of Essex - Department of Accounting, Finance & Management; King's College London

John C. Nankervis

University of Essex - Department of Accounting, Finance & Management

Ying Jiang

The University of Nottingham Ningbo, China

Date Written: February 2007

Abstract

This paper focuses on forecasting volatility of high frequency Euro exchange rates. Four 15 minute frequency Euro exchange rate series, including Euro/CHF, Euro/GBP, Euro/JPY and Euro/USD, are used to test the forecast performance of six models, including both traditional time series volatility models and the realized volatility model. Besides the normally used regression test and accuracy test, an equal accuracy test, the HLN-DM test, and a superior predictive ability test are also employed in the out-of-sample forecast evaluation. The FIGARCH model is found to be superior in almost all exchange rate series. Although the widely preferred ARFIMA model shows better performance than the traditional daily volatility models, generally speaking, it cannot surpass the FIGARCH model and the intraday GARCH model. Furthermore, the SVX model does not significantly outperform the SV model in the accuracy test, which contradicts the results of some earlier research. The paper confirms the advantage of using high frequency data and modelling the long memory factor. It also analyses the characteristics of Euro exchange rates and compares the test results with the conclusions drawn by previous studies.

Keywords: Foreign Exchange, Time-Series Models

JEL Classification: F31, C22

Suggested Citation

Chortareas, Georgios and Nankervis, John C. and Jiang, Ying, Forecasting Exchange Rate Volatility at High Frequency Data: Is the Euro Different? (February 2007). Available at SSRN: https://ssrn.com/abstract=969565 or http://dx.doi.org/10.2139/ssrn.969565

Georgios Chortareas

University of Athens - Faculty of Economics ( email )

8 Pesmazoglou street
GR-10559 Athens
Greece
+(30) 210 3689805 (Phone)
+(30) 210 3689810 (Fax)

University of Essex - Department of Accounting, Finance & Management ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

John C. Nankervis

University of Essex - Department of Accounting, Finance & Management ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Ying Jiang (Contact Author)

The University of Nottingham Ningbo, China ( email )

199 Taikang East Road
China

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