Bridging the gap between the distribution of realized (ECU) volatility and ARCH modelling (of the Euro): The GARCH-NIG model
This paper bridges the gap between traditional ARCH modelling and recent advances on realized volatilities. Based on a ten-year sample of five-minute returns for the ECU basket currencies versus the US dollar, we find that the realized volatilities constructed from the summation of the high-frequency intraday squared returns conditional on the lagged squared daily returns are approximately Inverse Gaussian (IG) distributed, while the distribution of the daily returns standardized by their realized volatilities is approximately normal. Moreover, the implied daily GARCH model with Normal Inverse Gaussian (NIG) errors estimated for the ECU returns results in very accurate out-of-sample predictions for the three years of actual daily Euro/US dollar exchange rates. Copyright © 2002 John Wiley & Sons, Ltd.
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- Econometrics
- 3802 Econometrics
- 3801 Applied economics
- 1403 Econometrics
- 1402 Applied Economics
Citation
Published In
DOI
ISSN
Publication Date
Volume
Issue
Start / End Page
Related Subject Headings
- Econometrics
- 3802 Econometrics
- 3801 Applied economics
- 1403 Econometrics
- 1402 Applied Economics