Forecasting the intraday market price of money
| Autor: | Andrea Monticini, Francesco Ravazzolo |
|---|---|
| Rok vydání: | 2014 |
| Předmět: |
Economics and Econometrics
Investment strategy media_common.quotation_subject Monetary economics jel:C22 Settore SECS-P/01 - ECONOMIA POLITICA Efficient-market hypothesis Interbank market Moving average Econometrics Economics Market price jel:E4 jel:E5 Predictability media_common Statistics::Applications jel:C53 Financial market Liquidity crisis interbank market intraday interest rate forecasting density forecasting policy tools Interest rate Autoregressive model Settore SECS-P/05 - ECONOMETRIA Funding liquidity Jump Counterparty Interbank lending market Finance Forecasting |
| Popis: | Market efficiency hypothesis suggests a zero level for the intraday interest rate. However, a liquidity crisis introduces frictions related to news, which can cause an upward jump of the intraday rate. This paper documents that these dynamics can be partially predicted during turbulent times. A long memory approach outperforms random walk and autoregressive benchmarks in terms of point and density forecasting. The gains are particular high when the full distribution is predicted and probabilistic assessments of future movements of the interest rate derived by the model can be used as a policy tool for central banks to plan supplementary market operations during turbulent times. Adding exogenous variables to proxy funding liquidity and counterparty risks does not improve forecast accuracy and the predictability seems to derive from the econometric properties of the series more than from news available to financial markets in realtime. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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