Predicting volatility in the foreign exchange market
Article Abstract:
Measures of volatility implied in option prices are widely believed to be the best available volatility forecasts. In this article, we examine the information content and predictive power of implied standard deviations (ISDs) deriived from Chicago Mercantile Exchange options on foreign currency futures. The article finds that statistical time-series models, even when given the advantage of "ex post" parameter estimates, are outperformed by ISDs. ISDs, however, also appear to be biased volatility forecasts. Using simulations to investigate the robustness of these results, the article finds that measurement errors and statistical problems can substantially distort inferences. Even accounting for these, however, ISDs appear to be too variable relative to future volatility. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1995
User Contributions:
Comment about this article or add new information about this topic:
Purchasing power parity in the long run
Article Abstract:
This paper re-examines the evidence on Purchasing Power Parity (PPP) in the long run. Previous studies have generally been unable to reject the hypothesis that the real exchange rate follows a random walk. If true, this implies that PPP does not hold. In contrast, this paper casts serious doubt on this random walk hypothesis. The results follow from more powerful estimation techniques, applied in a multilateral framework. Deviations from PPP, while substantial in the short run, appear to take about three years to be reduced in half. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1990
User Contributions:
Comment about this article or add new information about this topic:
- Abstracts: The taxation of foreign exchange gains and losses. Institute discussion with the Inland Revenue
- Abstracts: Managerial cognition and the mimetic adoption of market positions: what you see is what you do. Beyond the reach of the invisible hand: impediments to economic activity, market failures, and profitability
- Abstracts: Evidence on the possible underweighting of earnings-related information. Bad news and differential market reactions to announcements of earlier-quarter versus fourth-quarter earnings
- Abstracts: 1992 - a force for change in corporate reporting? On the table: Cadbury. Making Corporate Reports Valuable now and in the future
- Abstracts: The impact of the review process in hypothesis generation tasks