Modeling Volatility of Exchange Rates Returns in the Nigerian Foreign Exchange Market in the Presence of Non-Gaussian Errors

2019 ◽  
Vol 1 ◽  
pp. 246-258
Author(s):  
D A Kuhe ◽  
J T Aarga ◽  
I T Ayigege
Keyword(s):  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Good News ◽  
Foreign Exchange Rates ◽  
Exchange Market ◽  
Volatility Clustering ◽  
Long Run ◽  
Modeling Volatility ◽  
Non Gaussian

This study investigates volatility behaviour of exchange rates returns of Naira against CFA, Euro, Great British Pounds, US Dollar, West African Unit of Account (WAUA) and Japanese Yen in Nigeria using historical volatility approach as well as symmetric and asymmetric Autoregressive Conditional Heteroskedasticity (GARCH) models in the presence of non-Gaussian errors. The study utilizes daily quotations of these exchange rates from 12/11/2001 to 04/13/2018 making a total of 4008 observations each. Historical (annualized) volatility approach as well as symmetric GARCH (1,1) and asymmetric EGARCH (1,1) models were used to model the exchange rates return series. Results showed that CFA and USD have the highest and least annualized volatilities (market risk) respectively among the six exchange rates returns as measured by historical approach. The symmetric GARCH (1,1) model showed volatility clustering with evidence of shock persistence in the six exchange rates return series. The asymmetric EGARCH (1,1) model found evidence of asymmetry and leverage effects in the Nigerian foreign exchange market indicating that negative shocks (bad news) generate more volatility than positive shocks (good news) of similar magnitudes. All the estimated models were found to be stationary and mean reverting indicating the predictability and stability of the conditional variances of the foreign exchange rates returns. This result suggests that no matter how high or low the foreign exchange rates shall move in the exchange market, they shall eventually return to their long-run averages. Stationary and mean reverting stocks provide good and long term investment opportunities for investors.

Behaviour of the Foreign Exchange Rates of BRICS: Is it Chaotic?

2018 ◽  
Vol 11 (2) ◽  
pp. 1-19 ◽  
Author(s):  
Sharad Nath Bhattacharya ◽  
Mousumi Bhattacharya ◽  
Basav Roychoudhury
Keyword(s):  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Rate Volatility ◽  
Deterministic Chaos ◽  
Nonlinear Dependence ◽  
Foreign Exchange Rates ◽  
Brics Countries ◽  
Long Run ◽  
Chaotic Nature

The article focuses on the behaviour of foreign exchange rates of BRICS countries in reference to US dollar with special emphasis on examining presence of nonlinear dependence and deterministic chaos. The findings did not indicate random walk behaviour in the returns for all exchange rates and performance of GARCH as well as EGARCH models are reasonably good in capturing the conditional volatility. Further evidences suggest existence of nonlinear dependence and we compute Maximal Lyapunov Exponent and Correlation Dimension test with multiple surrogate series which confirms the chaotic nature of the exchange rates for all countries under study except for South Africa. The findings support short run predictability in exchange rates while long run predictions are unlikely to be successful. The chaotic nature of the foreign exchange market calls for newer intervention mechanism by the Central Bank of the respective countries to limit the exchange rate volatility.

scholarly journals Performance of technical indicators in forecasting high-frequency foreign exchange rates

2004 ◽  
Vol 52 (3) ◽  
pp. 157-166
Author(s):  
Václav Mastný
Keyword(s):  
Time Series ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
High Frequency ◽  
Foreign Exchange Market ◽  
Technical Analysis ◽  
Foreign Exchange Rates ◽  
Exchange Market ◽  
Technical Indicators

This paper deals with technical analysis and its forecasting ability in the intradaily foreign exchange market. The objective of this study is to investigate whether technical indicators are able to provide prediction superior to „buy and hold“ strategy. Each indicator is tested with series of parameters in time series of different frequency (5, 15, 30, 60 min). The profitability of each indicator is examined in simple trading modell.

Devisenmarktoperationen und Informationspolitik der Europäischen Zentralbank

2002 ◽  
Vol 3 (1) ◽  
pp. 49-68
Author(s):  
Michael Frenkel ◽  
Christian Pierdzioch ◽  
Georg Stadtmann
Keyword(s):  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Information Policy ◽  
Transmission Channel ◽  
Exchange Market ◽  
European Central ◽  
Transmission Channels ◽  
Market Intervention ◽  
Foreign Exchange Market Intervention

AbstractThis paper analyzes the effectiveness of the foreign exchange market interventions of the European Central Bank (ECB) by studying the information policy of the ECB and examining whether the ECB relied on a specific transmission channel to influence exchange rates. Against the background of a discussion of the transmission channels through which foreign exchange market interventions of central banks may affect exchange rates, we are led to the conclusion that the information policy of the ECB was not in line with the assumptions underlying the transmission channels discussed in the theoretical literature. We argue that this finding could provide a possible explanation for the ineffectiveness of the ECB's foreign exchange market intervention in the fall of 2000.

scholarly journals The Nexus of COVID-19 Pandemic, Foreign Exchange Rates, and Short-Term Returns

2020 ◽  
Vol 3 (2) ◽  
pp. 01-09
Author(s):  
Ali Farhan Chaudhry
Keyword(s):  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Abnormal Returns ◽  
World Health ◽  
Foreign Exchange Rates ◽  
Exchange Market ◽  
Short Term ◽  
Study Approach ◽  
Market Participants ◽  
Hedging Strategies

The current study examines short-term abnormal returns of eight major currencies including EUR/USD, GBP/USD, USD/AUD, USD/CAD, USD/CHF, USD/CNY, USD/JPY, and USD/SEK in response to the evolution of the COVID-19 pandemic using event study approach in three different scenarios. Firstly, short-term abnormal returns of major currencies are estimated on the day of World Health Organization’s (WHO) announcement declaring COVID-19 as a pandemic. Secondly, they are estimated on the day of the announcement of the first confirmed case of COVID-19 in the respective country. Thirdly, they are estimated on the day of the announcement of the first death from COVID-19 in each country. The results provided evidence that major currency investors earned positive returns in these three different scenarios. The implications of the current study are more important than anticipated. Government policymakers, foreign exchange market regulators, and foreign exchange market participants can anticipate short-term returns while establishing foreign exchange policies, designing rules and regulations, and finalizing trading and hedging strategies, respectively, in situations such as the current COVID-19 pandemic.  Received Date: September 20, 20202      Last Received:   October 23, 2020     Acceptance: November 13, 2020

scholarly journals The “day-of-the-week” effects in the exchange rate of Latin American currencies

2019 ◽  
Vol 14 (PNEA) ◽  
pp. 485-507
Author(s):  
Roberto Joaquín Santillán Salgado ◽  
Alejandro Fonseca Ramírez ◽  
Luis Nelson Romero
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Latin American ◽  
Foreign Exchange Market ◽  
The United States ◽  
Management Decision ◽  
Exchange Market ◽  
Day Of The Week ◽  
The Exchange Rate

This paper examines the “day-of-the-week” anomaly in the foreign exchange market of six major Latin American countries’ currencies: (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), all with respect to the United States’ dollar. The returns of daily exchange rates are stationary, so we use linear regressions combined with GARCH, TARCH and EGARCH models to explore the presence of the “day-of-the-week” anomaly. The results confirm the presence of “abnormal” effects in some of the currencies and in some days of the week, particularly on Fridays and Mondays. Moreover, volatility in exchange rates shows clustering behavior, as well as leverage effects, which are carefully modelled in our analysis. This paper contributes to the literature by studying the “day-of-the-week” effects in currency exchange rate markets, a clear innovation with respect to the typical stock market analysis. The results reported are useful for foreign exchange market traders, currency exposure management decision makers, monetary authorities, and financial policy designers in the countries included in the study. Indeed, the results suggest the presence of a typical behavior of the exchange rate of all the currencies included in the sample.

scholarly journals Foreign Exchange Market and the Asset Approach

2021 ◽  
Vol 9 (9) ◽  
pp. 351-356
Author(s):  
Dr. Varsha Agarwal
Keyword(s):  
International Trade ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Foreign Currency ◽  
Trade Flows ◽  
Exchange Market ◽  
Abstract Exchange ◽  
Relative Prices ◽  
Goods And Services

Abstract: Exchange rates play a central role in international trade because they allow us to compare the prices of goods and services produced in different countries. A consumer deciding which of two American cars to buy must compare their dollar prices. Households and firms use exchange rates to translate foreign prices into domestic cur-rency terms. Once the money prices of domestic goods and imports have been expressed in terms of the same currency, households and firms can compute the relative prices that affect international trade flows. Keywords: Foreign Exchange, Exchange Rate, International Trade, Foreign Currency, FOREX Rate, Assets Approach.

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