TY  - JOUR
AU  - West,Kenneth D.
AU  - Edison,Hali J.
AU  - Cho,Dongchul
TI  - A Utility Based Comparison of Some Models of Exchange Rate Volatility
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 128
PY  - 1992
Y2  - November 1992
UR  - http://www.nber.org/papers/t0128
L1  - http://www.nber.org/papers/t0128.pdf
N1  - Author contact info:
Kenneth D. West
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706
Tel: 608/262-0033
Fax: 608/262-2033
E-Mail: kdwest@wisc.edu

Hali Edison
International Monetary Fund
Asia and Pacific Department
Washington, DC  20431
Tel: 202-623-6946
Fax: 202-589-6946
E-Mail: hedison@imf.org
AB  - 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.
ER  -