Sources of volatility persistence: a case study of the U.K. pound/U.S. dollar exchange rate returns

Beg, A.B.M. Rabiul Alam, and Anwar, Sajid (2012) Sources of volatility persistence: a case study of the U.K. pound/U.S. dollar exchange rate returns. North American Journal of Economics and Finance, 23 (2). pp. 165-184.

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Abstract

This paper utilizes a new approach to examine the inherent nonlinear dynamics of the exchange rate returns volatility. Specifically, we utilize a regime switching threshold (i) generalized autoregressive conditional heteroskedasticity (RS-TGARCH) and (ii) a fractional generalized autoregressive conditional heteroskedasticity (RS-TFIGARCH) model. The RS-TGARCH model is found to be adequate in analyzing the first two moments of the U.K. pound/U.S. dollar monthly exchange rate returns series. The RS-TFIGARCH is found to be adequate for the daily returns series. The volatility persistence and leverage effects associated with exchange rate returns series are jointly tested by means of a Wald Chi-square test.

Item ID: 22514
Item Type: Article (Research - C1)
ISSN: 1879-0860
Keywords: leverage effect, volatility persistence, regime switching GARCH models, exchange rates
Date Deposited: 01 Aug 2012 01:58
FoR Codes: 14 ECONOMICS > 1403 Econometrics > 140305 Time-Series Analysis @ 100%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9101 Macroeconomics > 910104 Exchange Rates @ 100%
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