Volatility Forecasts for the Mexican Peso - U.S. Dollar Exchange Rate PDF Download
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Languages : en
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Author: Guillermo Benavides
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Category :
Languages : en
Pages : 47
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There has been substantial research effort aimed to forecast futures price return volatilities of financial assets. A significant part of the literature shows that volatility forecast accuracy is not easy to estimate regardless of the forecasting model applied. This paper examines the volatility accuracy of several volatility forecast models for the case of the Mexican peso-USD exchange rate futures returns. The models applied here are a univariate GARCH, a multivariate ARCH (the BEKK model), two option implied volatility models and a composite forecast model. The composite model includes time-series (historical) and option implied volatility forecasts. Different to other works in the literature, in this paper there is a more rigorous analysis of the option implied volatilities calculations. While most of the papers in the literature present only one option implied volatility model or estimates from it in this paper there are two option pricing models presented: one for pricing European options and the other one an approximation to price American options. The results show that the option implied models are superior to the historical models in terms of accuracy and that the composite forecast model was the most accurate one (compared to the alternative models) having the lowest mean-square-errors. According to these findings it is recommended to use a composite forecast model if both types of data are available i.e. the time-series (historical) and the option implied.
Author: Guillermo Benavides
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Category :
Languages : en
Pages : 34
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This paper shows that combinations of option implied and time series volatility forecasts that are conditional on current information are statistically superior to individual models, (unconditional) combinations, and hybrid forecasts. Hence, it finds empirical evidence that both, combining individual forecasts, and taking into account the conditional expected performance of each model given current information, are important to improve out-of-sample forecasting performance. The method used in this paper extends the application of conditional predictive ability tests to select forecast combinations. We show that this method works well in practice by applying it to volatility forecasts for the Mexican Peso-US Dollar exchange rate, where the actual value is taken to be the realized volatility measured using intra-day observations.
Author: Gustavo Abarca
Publisher:
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Category :
Languages : en
Pages : 37
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This paper examines two approaches characterized by different tail features to extract market expectations on the Mexican peso-US dollar exchange rate. Expectations are gauged by Risk-Neutral Densities (RNDs). The methods used to estimate these densities are the Volatility Function Technique (VFT) proposed by Malz (1997) and the Generalized Extreme Value (GEV) approach suggested by Figlewski (2009). We compare these methods in the context of monetary policy announcements in Mexico and the US. We find evidence that US surprises, which are measured following Kuttner (2001), have significant effects on exchange rate variations. Around event days in Mexico and the US, the results also indicate that, although both VFT and GEV suggest similar dynamics at the center of the distribution, these two methods show significantly different patterns in the tails. Our empirical evidence shows that the GEV captures better the extreme values of the distribution around monetary policy event days given its unique procedure that allows for longer asymptotically well-behaved tails. This explains the main differences.
Author: Gabriela López Noria
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Languages : en
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This paper investigates the effect of uncertainty on the volatility of the Mexican peso U.S. dollar exchange rate for the period 1999 - 2018. The empirical analysis consists on estimating a model by OLS and System GMM that includes measures of economic, political, and financial uncertainty, both domestic and international, as explicative variables. The main results show that greater uncertainty leads to higher exchange rate volatility; measures of international uncertainty are found to dominate domestic uncertainty measures, although the domestic uncertainty has also an important effect on the exchange rate volatility; and there is evidence of an amplifying effect of domestic economic uncertainty on exchange rate volatility, especially during periods of recession. These results are shown to be robust to different exchange rate volatility measures, different specifications, and different economic policy uncertainty indices.
Author: Alejandro M. Werner
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Languages : en
Pages : 0
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This paper studies the behavior of the Mexican peso during the floating exchange rate period of 1995-1996. We study the statistical properties of the exchange rate's daily fluctuations, and we compared them with those observed for other currencies. We conclude that except for the periods of extreme volatility experienced in 1995, which were associated with an increase in uncertainty towards the whole macroeconomic strategy, the volatility of the Mexican peso was similar to that experienced by other currencies under a floating exchange rate regime. We also study the effect of domestic and foreign interest rates on the exchange rate and its volatility. Finally, we look at the impact of exchange rate changes and foreign interest rates on domestic interest rates.
Author: Mr.Paul R. Masson
Publisher: International Monetary Fund
ISBN: 1451929099
Category : Business & Economics
Languages : en
Pages : 36
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This paper examines credibility and reputational factors in explaining the December 1994 crisis of the Mexican peso. After reviewing events leading to the crisis, a model emphasizing the inflation-competitiveness trade-off is presented to explain the formation of devaluation expectations. Estimation results indicate that investors appear to have seriously underestimated the risk of devaluation, despite early warning signals. The collapse of confidence that followed the December 20 devaluation may have been the result of a shift in the perceived commitment of the authorities to exchange rate stability.
Author: Carol Louise Baker
Publisher:
ISBN:
Category : Finance
Languages : en
Pages : 232
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Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1451825811
Category : Business & Economics
Languages : en
Pages : 67
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This 2007 Article IV Consultation highlights that the economic expansion of Mexico has continued albeit slowed by developments in the United States. Despite some pickup in the second and third quarter, growth is projected to be close to 3 percent for 2007 as a whole. Fiscal policy is on track to achieve balance for 2007, on the traditional budget measure, as required by the new Fiscal Responsibility Law. Executive Directors have commended the improvements in macroeconomic and financial policies that have helped Mexico to reduce significantly external and internal vulnerabilities over the years.
Author: Hui Guo
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 38
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