Forecasting exchange rate markets' volatility of G7 countries: will stock market volatility help?

ABSTRACT

In this paper, we consider the prediction accuracy of the realized volatility of exchange rate market fluctuations of G7 countries, using daily data spanning from 1 January 2000 to 31 October 2020. Our empirical results show that the realized volatility of the stock market is an important factor for predicting the realized volatility of the exchange rate market in all the G7 countries. Our findings also reveal stable differences in the performances of predictability from stock market volatility to exchange rate volatility amongst the G7 countries.

KEYWORDS:

• Exchange rates
• realized volatility
• prediction accuracy
• out-of-sample performance

JEL CLASSIFICATION:

• C32
• F31
• F40
• F47

Acknowledgments

The authors thank the editor and the reviewer for constructive comments that have significantly improved the presentation of the paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).n'm

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

This work was partially supported by the National Natural Science Foundation of China (Grant No. 72171192 and 11771133).