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Presidential economic approval rating and global foreign exchange market volatility

Author

Listed:
  • Gong, Xue
  • Xu, Weijun
  • Li, Xiaodan
  • Gong, Xue

Abstract

This paper examines the influence of presidential economic approval rating (PEAR) on the volatility of 15 major foreign exchange (FX) markets. The study reveals that the PEAR index serves as an insightful predictor for forecasting certain FX market volatilities, demonstrating predictive accuracy both in- and out-of-sample period. This predictability endures over longer horizons and withstands various robustness assessments. Notably, the forecasting efficacy of PEAR surpasses that of uncertainty factors and macroeconomic indicators. Additionally, we illustrate that a combined forecast incorporating all predictors enhances forecasting robustness. Finally, our findings indicate that PEAR can also elucidate future jump risks and returns in FX markets.

Suggested Citation

  • Gong, Xue & Xu, Weijun & Li, Xiaodan & Gong, Xue, 2024. "Presidential economic approval rating and global foreign exchange market volatility," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924005167
    DOI: 10.1016/j.irfa.2024.103584
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    More about this item

    Keywords

    Presidential economic approval rating; FX market risk; Realized volatility; Forecast combination;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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