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Can Tail Risk Predict Asia-Pacific Exchange Rates Out of Sample?

Author

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  • Idris A. Adediran

    (Centre for Econometric and Allied Research University of Ibadan, Nigeria)

Abstract

We present novel evidence to show that tail (market) risk, measured as the conditional autoregressive value at risk, is a good predictor of Asia-Pacific exchange rates. We use daily exchange rate data for the Australian dollar, the Chinese yuan, the Indonesian rupiah, the Japanese yen, the Malaysian ringgit, the New Zealand dollar, the Philippine peso, and the Singapore dollar each against the US dollar, the pound sterling, and the euro between January 3, 2007, and March 8, 2021. Impact analyses suggest hedging benefits for investors in US dollar–denominated exchange rates, especially in advanced Asia-Pacific countries. Superior out-of-sample forecast performance appears to supersede the Meese–Rogoff puzzle.

Suggested Citation

  • Idris A. Adediran, 2021. "Can Tail Risk Predict Asia-Pacific Exchange Rates Out of Sample?," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 2(3), pages 1-6.
    • Handle: RePEc:ayb:jrnael:42
    DOI: 2021/10/06
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    References listed on IDEAS

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    Cited by:

    1. Adediran, Idris A. & Swaray, Raymond, 2023. "Carbon trading amidst global uncertainty: The role of policy and geopolitical uncertainty," Economic Modelling, Elsevier, vol. 123(C).
    2. Salisu, Afees A. & Gupta, Rangan & Pierdzioch, Christian, 2022. "Predictability of tail risks of Canada and the U.S. Over a Century: The role of spillovers and oil tail Risks☆," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    3. Hao-Chang Yang & Ferry Syarifuddin & Chun-Ping Chang & Hai-Jie Wang, 2022. "The Impact of Exchange Rate Futures Fluctuations on Macroeconomy: Evidence from Ten Trading Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(8), pages 2300-2313, June.

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    More about this item

    Keywords

    meese-rogoff puzzle; asia-pacific; tail risk; forecasting;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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