@techreport{NBERt0128,
title = "A Utility Based Comparison of Some Models of Exchange Rate Volatility",
author = "Kenneth D. West and Hali J. Edison and Dongchul Cho",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Technical Working Paper Series",
number = "128",
year = "1992",
month = "November",
doi = {10.3386/t0128},
URL = "http://www.nber.org/papers/t0128",
abstract = {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.},
}