On the relevance of realized quarticity for exchange rate volatility forecasts
High-frequency tick data have proved helpful for forecasting volatility across asset classes. In the finite samples typically faced by practitioners, however, noise inherent in tick-level prices creates inaccuracies in model parameter estimates and resulting forecasts. A remedy proposed to alleviate...
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| Format: | Article |
| Language: | English |
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AIMS Press
2024-10-01
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| Series: | Data Science in Finance and Economics |
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| Online Access: | https://www.aimspress.com/article/doi/10.3934/DSFE.2024021 |
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| author | Morten Risstad Mathias Holand |
| author_facet | Morten Risstad Mathias Holand |
| author_sort | Morten Risstad |
| collection | DOAJ |
| description | High-frequency tick data have proved helpful for forecasting volatility across asset classes. In the finite samples typically faced by practitioners, however, noise inherent in tick-level prices creates inaccuracies in model parameter estimates and resulting forecasts. A remedy proposed to alleviate these measurement errors is to include higher-order moments, more specifically the realized quarticity, in volatility prediction models. In this paper, we investigate the relevance of this approach in foreign exchange markets, as represented by EURUSD and USDJPY data from 2010 to 2022. Using well-established realized volatility models, we find that including realized quarticity leads to higher precision in daily, weekly, and monthly out-of-sample forecasts. These results are robust across estimation windows, evaluation metrics, and model specifications. |
| format | Article |
| id | doaj-art-e2262263f4324793806cbe76615dabd6 |
| institution | Kabale University |
| issn | 2769-2140 |
| language | English |
| publishDate | 2024-10-01 |
| publisher | AIMS Press |
| record_format | Article |
| series | Data Science in Finance and Economics |
| spelling | doaj-art-e2262263f4324793806cbe76615dabd62025-01-24T01:03:03ZengAIMS PressData Science in Finance and Economics2769-21402024-10-014451453010.3934/DSFE.2024021On the relevance of realized quarticity for exchange rate volatility forecastsMorten Risstad0Mathias Holand1Norwegian University of Science and Technology, Dept. of Industrial Economics and Technology Management, NorwayNorwegian University of Science and Technology, Dept. of Industrial Economics and Technology Management, NorwayHigh-frequency tick data have proved helpful for forecasting volatility across asset classes. In the finite samples typically faced by practitioners, however, noise inherent in tick-level prices creates inaccuracies in model parameter estimates and resulting forecasts. A remedy proposed to alleviate these measurement errors is to include higher-order moments, more specifically the realized quarticity, in volatility prediction models. In this paper, we investigate the relevance of this approach in foreign exchange markets, as represented by EURUSD and USDJPY data from 2010 to 2022. Using well-established realized volatility models, we find that including realized quarticity leads to higher precision in daily, weekly, and monthly out-of-sample forecasts. These results are robust across estimation windows, evaluation metrics, and model specifications.https://www.aimspress.com/article/doi/10.3934/DSFE.2024021foreign exchangevolatilityhigh-frequency datarealized quarticitymulti-period forecasts |
| spellingShingle | Morten Risstad Mathias Holand On the relevance of realized quarticity for exchange rate volatility forecasts Data Science in Finance and Economics foreign exchange volatility high-frequency data realized quarticity multi-period forecasts |
| title | On the relevance of realized quarticity for exchange rate volatility forecasts |
| title_full | On the relevance of realized quarticity for exchange rate volatility forecasts |
| title_fullStr | On the relevance of realized quarticity for exchange rate volatility forecasts |
| title_full_unstemmed | On the relevance of realized quarticity for exchange rate volatility forecasts |
| title_short | On the relevance of realized quarticity for exchange rate volatility forecasts |
| title_sort | on the relevance of realized quarticity for exchange rate volatility forecasts |
| topic | foreign exchange volatility high-frequency data realized quarticity multi-period forecasts |
| url | https://www.aimspress.com/article/doi/10.3934/DSFE.2024021 |
| work_keys_str_mv | AT mortenrisstad ontherelevanceofrealizedquarticityforexchangeratevolatilityforecasts AT mathiasholand ontherelevanceofrealizedquarticityforexchangeratevolatilityforecasts |