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Enhancing exchange rate volatility prediction accuracy: Assessing the influence of different indices on the USD/CNY exchange rate

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  • Luo, Tao
  • Zhang, Lixia
  • Sun, Huaping
  • Bai, Jiancheng

Abstract

In this paper, the GARCH-MIDAS model is used to empirically study the influence of several uncertainties on the volatility of the CNY-USD forex market. The sample and out-of-sample prediction results show that the nine uncertainty indexes significantly impact the volatility of the CNY-USD forex market and can improve the prediction effect of CNY-USD rate volatility. Then using model confidence set and Direction-of-change test out-of-sample test, it is found that Compared with China's Economic policy uncertainty and China's trade policy uncertainty, US Economic Policy Uncertainty and US trade policy uncertainty can improve the prediction accuracy of CNY-USD forex market volatility.

Suggested Citation

  • Luo, Tao & Zhang, Lixia & Sun, Huaping & Bai, Jiancheng, 2023. "Enhancing exchange rate volatility prediction accuracy: Assessing the influence of different indices on the USD/CNY exchange rate," Finance Research Letters, Elsevier, vol. 58(PB).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pb:s1544612323008553
    DOI: 10.1016/j.frl.2023.104483
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    1. Xiong, Youlin & Shen, Jun & Yoon, Seong-Min & Dong, Xiyong, 2024. "Macroeconomic determinants of the long-term correlation between stock and exchange rate markets in China: A DCC-MIDAS-X approach considering structural breaks," Finance Research Letters, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Volatility prediction; Uncertainty; USD/CNY exchange rate;
    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
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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