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The Role of Economic Uncertainty in Forecasting Exchange Rate Returns and Realized Volatility: Evidence from Quantile Predictive Regressions

Author

Listed:
  • Christina Christou

    (School of Economics and Management, Open University of Cyprus, Latsia, Cyprus)

  • Rangan Gupta

    (University of Pretoria, Pretoria, South Africa)

  • Christis Hassapis

    (School of Economics and Management, Department of Economics, University of Cyprus, Nicosia, Cyprus)

  • Tahir Suleman

    (School of Economics and Finance, Victoria University of Wellington and School of Business, Wellington Institute of Technology)

Abstract
In this paper, we investigate whether the news-based measure of economic policy uncertainty (EPU), can be used to forecast exchange rate returns and volatility using a quantile regression approach, which accounts for persistence and endogeneity, using data from thirteen different countries. Our main findings suggest that: (i) EPU is useful for forecasting exchange rate returns and volatility, (ii) forecasting ability-quantile order relationships exhibit U-shape, possibly asymmetric form around the median and (iii) asymmetries are more pronounced in the case of forecasting volatility.

Suggested Citation

  • Christina Christou & Rangan Gupta & Christis Hassapis & Tahir Suleman, 2017. "The Role of Economic Uncertainty in Forecasting Exchange Rate Returns and Realized Volatility: Evidence from Quantile Predictive Regressions," Working Papers 201774, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201774
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    References listed on IDEAS

    as
    1. Mehmet Balcilar & Rangan Gupta & Clement Kyei & Mark E. Wohar, 2016. "Does Economic Policy Uncertainty Predict Exchange Rate Returns and Volatility? Evidence from a Nonparametric Causality-in-Quantiles Test," Open Economies Review, Springer, vol. 27(2), pages 229-250, April.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Economic Policy Uncertainty; Exchange Rate Returns; Volatility; Quantile Predictive Regressions; Developed and Emerging Markets;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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