Models for forecasting exchange rate volatility: a comparison between developed and emerging countries

The main objective of this paper is to test the hypothesis that emerging markets are more sensitive to negative shocks than positive ones, and also that developed ones do not exhibit this same pattern. Using the family of ARCH models, the conditional variances of exchange rates in Brazil, Mexico and Singapore, representing the emerging countries, and the Euro Zone, UK and Japan, representing the developed ones, are estimated and forecasted. The results indicate that there is no relationship between the country being either developed or emerging, and its best fit is given by a model symmetrical or asymmetrical.