Power transformation and forecasting the magnitude of exchange rate changes

Michael D. McKenzie*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

13 Citations (Scopus)

Abstract

This paper examines the impact of power transformations on the forecasting performance of AR models with respect to the magnitude of change in Australian bilateral exchange rates. The results obtained in this study suggest that the use of squared returns as per ARCH type models are generally inferior to other power transformations. The optimal power transformation is sensitive to the measure of forecasting performance chosen although it is close to the returns themselves as per a Taylor/Schwert type model.

Original languageEnglish
Pages (from-to)49-55
Number of pages7
JournalInternational Journal of Forecasting
Volume15
Issue number1
Publication statusPublished - 1 Feb 1999

Keywords

  • AR models
  • Australian bilateral exchange rates
  • Impact of power transformations

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