Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/27528 
Year of Publication: 
2009
Citation: 
[Journal:] Economics: The Open-Access, Open-Assessment E-Journal [ISSN:] 1864-6042 [Volume:] 3 [Issue:] 2009-8 [Publisher:] Kiel Institute for the World Economy (IfW) [Place:] Kiel [Year:] 2009 [Pages:] 1-33
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
A practice that has become widespread and widely endorsed is that of evaluating forecasts of financial variability obtained from discrete time models by comparing them with high-frequency ex post estimates (e.g. realised volatility) based on continuous time theory. In explanatory financial variability modelling this raises several methodological and practical issues, which suggests an alternative approach is needed. The contribution of this study is twofold. First, the finite sample properties of operational and practical procedures for the forecast evaluation of explanatory discrete time models of financial variability are studied. Second, based on the simulation results a simple but general framework is proposed and illustrated. The illustration provides an example of where an explanatory model outperforms realised volatility ex post.
Subjects: 
Financial variability
financial volatility
forecasting
explanatory modelling
exchange rates
JEL: 
C52
C53
F31
F37
F47
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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