34

APPENDICES

Figure 1. Weekly returns percentage





Notes Figure 1 :
1) The weekly returns are Australian dollar, the British pound sterling, the Japanese
Yen, the Canada Dollar exchange rates vis--vis the US
2) Period : 1 January 1997 until 29 December 2010




-10
-5
0
5
10
15
20
1998 2000 2002 2004 2006 2008 2010
AUD RETURN
-6
-4
-2
0
2
4
6
8
1998 2000 2002 2004 2006 2008 2010
POUND RETURN
-15
-10
-5
0
5
1998 2000 2002 2004 2006 2008 2010
YEN RETURN
-6
-4
-2
0
2
4
6
1998 2000 2002 2004 2006 2008 2010
CAD RETURN
APPENDICES

35

Figure 2. Residuals checking British Pound sterling



Notes Figure 2 :
1) The residuals are standardized residuals of British poundsterling returns.
2) First graph provides the plot of the standardized residuals.
3) Second graph is the ACF plot of the standardized residuals.
4) Third graph is the QQ plot of the standardized residuals.


APPENDICES

36

Figure 3. Residuals checking Australian Dollar


Notes Figure 3 :
1) The residuals are standardized residuals of Australian dollar returns.
2) First graph provides the plot of the standardized residuals.
3) Second graph is the ACF plot of the standardized residuals.
4) Third graph is the QQ plot of the standardized residuals.

APPENDICES

37

Figure 4. Residuals checking Japanese Yen


Notes Figure 4 :
1) The residuals are standardized residuals of Japanese Yen returns.
2) First graph provides the plot of the standardized residuals.
3) Second graph is the ACF plot of the standardized residuals.
4) Third graph is the QQ plot of the standardized residuals.

APPENDICES

38

Figure 5. Residuals checking Canadian Dollar


Notes Figure 5 :
1) The residuals are standardized residuals of Canadian Dollar returns.
2) First graph provides the plot of the standardized residuals.
3) Second graph is the ACF plot of the standardized residuals.
4) Third graph is the QQ plot of the standardized residuals.

APPENDICES

39

Table 1 : Summary statistic for exchange rates returns
AUD POUND YEN CAD
Mean
Skewness
-0.033880
1.227344
0.013657
0.458897
-0.04783
-1.20718
-0.04303
0.254991
Kurtosis
Std. Dev
12.85313
1.777516
5.308733
1.271938
10.28952
1.505432
5.993531
1.235128
Jarque-Bera
Probability
3136.25
0.000
188.007
0.000
1796.013
0.000
280.8657
0.000
Notes Table 1:
1) The sample period is from 1 January 1997 until 29 December 2010
Table 2 : Average ranks of linear models to forecast exchange rate returns according to
MSPE using expanding sample, 2006-2010
Year RW AIC AR(5) AR(10)
h=1
2006 1.50 2.50 3.50 2.50
2007 1.75 2.25 2.50 3.50
2008 1.00 2.75 3.25 3.00
2009 2.50 2.25 1.75 3.50
2010 1.75 2.75 2.25 3.25
All 1.70 2.50 2.65 3.15
h=5
2006 2.75 2.75 2.00 2.50
2007 2.75 2.25 3.75 1.25
2008 1.50 2.75 1.75 4.00
2009 1.50 2.75 2.00 3.75
2010 2.00 2.50 1.75 3.75
All 2.10 2.60 2.25 3.05
h=10
2006 3.00 2.75 2.75 1.50
2007 2.75 2.75 2.75 1.75
2008 1.50 3.25 2.25 3.00
2009 1.75 3.25 2.50 2.50
2010 3.00 2.25 2.00 2.75
All 2.40 2.85 2.45 2.30
Notes Table 1:
1) RW denotes for random walk with drift, AIC denotes an AR(p) model with the
order p selected by AIC criterion. h denotes the forecast horizon.
APPENDICES

40

Table 3 : Average ranks of linear models to forecast exchange rate returns according to
MAPE using expanding sample, 2006-2010

Year RW AIC AR(5) AR(10)
h=1
2006 1.50 2.25 3.50 2.75
2007 1.75 2.75 2.75 2.75
2008 1.00 3.00 2.75 3.25
2009 2.00 2.50 1.50 4.00
2010 2.25 2.50 2.75 2.50
All 1.70 2.60 2.65 3.05
h=5
2006 2.75 2.00 3.50 1.75
2007 3.00 3.00 2.75 2.00
2008 1.50 2.75 2.50 3.25
2009 1.50 2.75 2.00 3.75
2010 2.25 2.75 1.50 3.50
All 2.20 2.65 2.45 2.85
h=10
2006 3.25 2.25 3.00 1.50
2007 2.75 2.75 3.00 2.00
2008 1.00 3.00 2.75 3.25
2009 1.25 3.25 2.75 2.75
2010 2.50 2.50 2.00 3.00
All 2.15 2.75 2.70 2.50
Notes Table 3 :
1) RW denotes for random walk with drift, AIC denotes an AR(p) model with the
order p selected by AIC criterion.
2) h is the forecast horizon
3) The forecasting is based on expanding sample


APPENDICES

41

Table 4 : Average ranks of linear models to forecast exchange rate returns according to
Median Absolute Percentage Error, 2006-2010

Year RW AIC AR(5) AR(10)
h=1
2006 1.50 2.50 2.75 3.25
2007 2.00 2.75 2.50 2.75
2008 1.00 2.25 3.25 3.50
2009 1.50 3.25 2.00 3.25
2010 1.50 2.75 3.50 2.25
All 1.50 2.70 2.80 3.00
h=5



2006 2.25 2.50 2.50 2.75
2007 1.75 3.75 2.25 2.25
2008 1.50 2.50 3.00 3.00
2009 1.50 2.75 3.00 2.75
2010 1.00 2.50 3.25 3.25
All 1.60 2.80 2.80 2.80
h=10



2006 2.50 2.00 2.50 3.00
2007 2.00 3.50 2.50 2.00
2008 1.25 3.00 2.50 3.25
2009 1.50 3.25 3.00 2.25
2010 1.25 2.75 2.75 3.25
All 1.70 2.90 2.65 2.75
Notes Table 4 :
1) RW denotes for random walk with drift, AIC denotes an AR(p) model with the
order p selected by AIC criterion.
2) h is the forecast horizon
3) The forecasting is based on expanding sample

APPENDICES

42

Tabel 5 : Forecast comparison of linear models with random walks, squared prediction
errors, 2006-2010
Year AR(5) AR(10) AIC
h=1

2006 0/0 1/0 0/0
2007 1/0 0/0 1/0
2008 0/0 1/0 0/0
2009 0/0 1/0 0/0
2010 1/0 0/0 0/0
All 2/0 3/0 1/0
h=5

2006 0/0 0/0 0/1
2007 0/0 0/0 0/0
2008 1/0 2/0 0/0
2009 0/0 1/0 0/0
2010 1/0 2/0 0/1
All 2/0 5/0 1/2
h=10

2006 1/1 0/0 1/1
2007 0/0 0/2 1/2
2008 1/0 0/0 1/0
2009 0/0 0/0 0/0
2010 1/1 2/0 1/0
All 3/2 2/2 4/3
Notes Table 5 :
1) Comparison of forecasts performance of linear models with random walk forecast of
weekly returns h days ahead based on expanding sample
2) The comparison is based on the DM statistics (2.21) using squared prediction errors.
3) The figure following the slash denotes the number of series of which the random
walk forecasts outperform the linear model forecasts at 5% level of significance
level.
4) AIC denotes an AR(p) model with the order p selected by AIC criterion.



APPENDICES

43

Tabel 6 : Forecast comparison of linear models with random walks, absolute prediction
errors, 2006-2010
Year AR(5) AR(10) AIC
h=1

2006 1/0 1/0 0/0
2007 1/1 0/0 1/1
2008 0/0 2/0 0/0
2009 2/0 0/0 0/0
2010 0/0 1/0 0/0
All 4/1 4/0 1/1
h=5

2006 0/0 0/0 0/0
2007 0/0 0/1 0/1
2008 0/0 2/0 1/0
2009 1/0 0/0 0/0
2010 1/0 1/0 0/0
All 2/0 3/1 1/1
h=10

2006 0/1 0/0 1/1
2007 0/0 2/2 0/1
2008 2/0 1/0 2/0
2009 0/0 0/0 0/1
2010 0/0 1/0 0/0
All 2/1 3/2 3/3

Notes Table 6 :
1) Comparison of forecasts performance of linear models with random walk forecast of
weekly returns h days ahead based on expanding sample
2) The comparison is based on the DM statistics (2.21) using absolute prediction
errors.
3) The figure following the slash denotes the number of series of which the random
walk forecasts outperform the linear model forecasts at 5% level of significance
level.
4) AIC denotes an AR(p) model with the order p selected by AIC criterion.


APPENDICES

44

Table 7 : AIC values for TAR models Australian dollar exchange rate
Threshold variable
lag order p
0 1 2 3 4 5

38.159
45.161
41.901
42.758
44.849
44.112
43.673
47.038
46.737
50.921
44.367
52.701

42.935
43.823
39.905
34.816
44.713
38.897
45.353
42.946
49.798
40.398
49.954
45.210
Notes Table 7:
1) Values of AIC for TAR models estimated on weekly returns on the Australian dollar
exchange rate vis--vis the US dollar.
Table 8 : AIC values for TAR models British pound sterling exchange rate

Threshold variable
lag order p
0 1 2 3 4 5

375.097
371.042
379.066
369.096
382.685
375.064
371.771
372.806
366.267
378.528
372.096
382.368

372.208
373.461
369.24
378.426
373.434
383.285
376.992
386.900
381.145
390.591
386.158
393.828
Notes Table 8:
1) Values of AIC for TAR models estimated on weekly returns on the British pound
exchange rate vis--vis the US dollar.

APPENDICES

45

Table 9 : AIC values for TAR models Japanese Yen exchange rate
Threshold variable
lag order p
0 1 2 3 4 5

395.371
394.809
400.548
399.856
403.870
378.790
408.638
381.977
403.000
382.946
395.827
386.403

390.286
393.814
395.240
395.505
400.353
402.392
393.090
393.211
400.658
395.987
406.262
400.282
Notes Table 9:
1) Values of AIC for TAR models estimated on weekly returns on the Japanese Yen
exchange rate vis--vis the US dollar.

Table 10 : AIC values for TAR models Canadian dollar exchange rate
Threshold variable
lag order p
0 1 2 3 4 5

-107.407
-108.367
-113.653
-108.846
-103.775
-105.389
-114.537
-108.915
-98.225
-100.081
-108.642
-102.917
-98.185
-97.355
-104.632
-98.130
-95.468
-90.983
-99.107
-97.073
-90.492
-85.584
-93.607
-91.797
Notes Table 10:
1) Values of AIC for TAR models estimated on weekly returns on the Canadian dollar
exchange rate vis--vis the US dollar.


APPENDICES

46

Table 11 : SETAR estimates Australian dollar exchange rate

Confidence intervals
Variable Estimate St Error Low High

(363 obs.)

Constant -0.0117 0.0905 -0.1611 0.1706

0.0018 0.0715 -0.1161 0.1468

0.0437 0.0516 -0.0436 0.1441

0.0198 0.0497 0.0104 0.4020

0.0045 0.0590 0.0010 0.3019

(101 obs)

Constant 0.4271 0.3176 -0.3182 1.2452

-0.1699 0.1519 -0.4931 0.1496

-0.0161 0.0938 -0.3405 0.1702

-0.4893 0.0753 -0.6907 -0.3231

0.2671 0.0824 0.1310 0.4753

Threshold 1.13175 0.9749 1.5659
Notes Table 11:
1) Estimates of TAR model estimated on weekly returns on the Australian dollar
exchange rate vis--vis the US dollar.
2) The confidence intervals for the estimated AR parameters are based on the
asymptotic normal distribution.
3) The confidence interval for the threshold value is set for the threshold estimate

APPENDICES

47

Tabel 12 : SETAR estimates British pound sterling exchange rates

Confidence intervals
Variable Estimate St Error Low High

(138 obs.)

Constant 0.0307 0.0930 -0.1721 0.2040

0.3986 0.0868 0.1388 0.5689

(326 obs)

Constant -0.0322 0.0552 -0.1834 0.0752

0.0102 0.0433 -0.0883 0.0973

Threshold -0.5483

-0.76936 -0.14757
Notes Table 12:
1) Estimates of TAR model estimated on weekly returns on the British pound sterling
exchange rate vis--vis the US dollar.
2) The confidence intervals for the estimated AR parameters are based on the
asymptotic normal distribution.
3) The confidence interval for the threshold value is set for the threshold estimate

Table 13 : SETAR estimates Japanese Yen exchange rate

Confidence intervals
Variable Estimate St Error Low High

(290 obs.)

Constant 0.1314 0.0885 -0.8183 0.4103

0.0233 0.0581 -0.1364 0.3293

0.0960 0.0650 -0.2162 0.2254

(101 obs)

Constant -0.3704 0.3320 -0.9183 1.6442

0.0385 0.0628 -0.1791 0.2262

0.1877 0.1762 -0.6531 0.4785

Threshold 0.504065 -12.5431 4.246673
Notes Table 13:
1) Estimates of TAR model estimated on weekly returns on the Japanese yen exchange
rate vis--vis the US dollar.
2) The confidence intervals for the estimated AR parameters are based on the
asymptotic normal distribution.
3) The confidence interval for the threshold value is set for the threshold estimate

APPENDICES

48

Table 14 : SETAR estimates Canada dollar exchange rate

Confidence intervals
Variable Estimate St Error Low High

(138 obs.)

Constant -0.0402 0.1235 -0.2466 0.1884

-0.3281 0.1623 -0.5959 0.0222

(326 obs)

Constant -0.0343 0.0428 -0.1113 0.0408

0.0707 0.0516 -0.0328 0.1559

Threshold -0.97534 -0.9753 0.81791
Notes Table 14:
1) Estimates of TAR model estimated on weekly returns on the Japanese yen exchange
rate vis--vis the US dollar.
2) The confidence intervals for the estimated AR parameters are based on the
asymptotic normal distribution.
3) The confidence interval for the threshold value is set for the threshold estimate

Table 15 : Out of sample forecasting evaluation for TAR model relative to linear AR
Exchange rates
MSPE MAPE Median SPE Median APE
TAR AR TAR AR TAR AR TAR AR
British
Pound sterling
2.5258 2.5610 1.1460 1.1706 0.5965 0.6341 0.7724 0.7963
Australian
Dollar
4.3967 4.9944 1.5605 1.5698 1.4463 1.4419 1.2026 1.2008
Notes Table 15:
1) The evaluation of out of sample forecasting performance according to the MSPE,
MAPE, Median SPE and Median APE criterion.
2) The TAR model for British pound sterling is TAR (2;1,1) and the AR model is
AR(1).
3) The TAR model for Australian dollar is TAR (2;4,4) and the AR model is AR(4).
4) The forecasting horizon is 1-step-ahead based on expanding samples.