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A Utility Based Comparison of Some Models of Exchange Rate Volatility / Kenneth D. West, Hali J. Edison, Dongchul Cho.
- Format:
- Book
- Author/Creator:
- West, Kenneth D.
- Series:
- Technical Working Paper Series (National Bureau of Economic Research) no. t0128.
- NBER technical working paper series no. t0128
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1992.
- Summary:
- When estimates of variances are used to make asset allocation decisions, underestimates of population variances lead to lower expected utility than equivalent overestimates: a utility based criterion is asymmetric, unlike standard criteria such as mean squared error. To illustrate how to estimate a utility based criterion, we use five bilateral weekly dollar exchange rates, 1973-1989, and the corresponding pair of Eurodeposit rates. Of homoskedastic, GARCH, autoregressive and nonpararnetric models for the conditional variance of each exchange rate, GARCI-J models tend to produce the highest utility, on average. A mean squared error criterion also favors GARCH, but not as sharply.
- Notes:
- Print version record
- November 1992.
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