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Extreme co-movements and dependencies in volatility of exchange rate among US dollar and emerging currencies: a GAS-GARCH-student-t model

Extreme co-movements and dependencies in volatility of exchange rate among US dollar and emerging... In this paper, we utilise for the first time the GAS-GARCH-student-t models to examine the volatility of exchange rate returns between US dollar and emerging currencies. Then, the conditional heteroscedasticity models are used to capture the time-varying parameter by the scaled score function of the likelihood function. Methodologically, we employ a daily data of the exchange rate between US dollar and 19 emerging currencies grouped geographically in four regions; Africa, Asia, Europe and America. The period of study is from 1 January 2000 until 31 December 2014. Empirically, we show that the exchange rate returns between US dollar and emerging currencies present a highly volatility and confirm the existence of a greatly time-varying variance in the exchange rate time series obtained after the estimation of the GAS-GARCHstudent-t models. Furthermore, we can observe that the GAS-GARCH-student-t volatility prediction present their maximum into two period; after the terrorist attack on 11 September 2001 and after the financial crisis of 2008. Additionally, our empirical results indicated the presence of highly linkage between US dollar and emerging currencies which prove the economic and financial integration between the USA and the emerging countries. Keywords: GAS-GARCH-student-t; exchange rate; US dollar; emerging currencies; volatility. Copyright http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png African Journal of Accounting, Auditing and Finance Inderscience Publishers

Extreme co-movements and dependencies in volatility of exchange rate among US dollar and emerging currencies: a GAS-GARCH-student-t model

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Publisher
Inderscience Publishers
Copyright
Copyright © 2015 Inderscience Enterprises Ltd.
ISSN
2046-8083
eISSN
2046-8091
DOI
10.1504/AJAAF.2015.073467
Publisher site
See Article on Publisher Site

Abstract

In this paper, we utilise for the first time the GAS-GARCH-student-t models to examine the volatility of exchange rate returns between US dollar and emerging currencies. Then, the conditional heteroscedasticity models are used to capture the time-varying parameter by the scaled score function of the likelihood function. Methodologically, we employ a daily data of the exchange rate between US dollar and 19 emerging currencies grouped geographically in four regions; Africa, Asia, Europe and America. The period of study is from 1 January 2000 until 31 December 2014. Empirically, we show that the exchange rate returns between US dollar and emerging currencies present a highly volatility and confirm the existence of a greatly time-varying variance in the exchange rate time series obtained after the estimation of the GAS-GARCHstudent-t models. Furthermore, we can observe that the GAS-GARCH-student-t volatility prediction present their maximum into two period; after the terrorist attack on 11 September 2001 and after the financial crisis of 2008. Additionally, our empirical results indicated the presence of highly linkage between US dollar and emerging currencies which prove the economic and financial integration between the USA and the emerging countries. Keywords: GAS-GARCH-student-t; exchange rate; US dollar; emerging currencies; volatility. Copyright

Journal

African Journal of Accounting, Auditing and FinanceInderscience Publishers

Published: Jan 1, 2015

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