Naira-Dollar Exchange Rate Volatility Modeling Using Quadratic Moving Average Conditional Heteroscedasticity (QMACH)

Odunayo Magret Olarewaju () and Timilehin John Olasehinde ()
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Odunayo Magret Olarewaju: Durban University of Technology
Timilehin John Olasehinde: Ekiti State University

EuroEconomica, 2017, issue 2(36), 106-116

Abstract: This study investigates possible alternative modeling of Naira-Dollar exchange rate volatility in Nigeria. This paper compares the performance of the new model specification (QMACH) with the ARCHGARCH that are already in existence in volatility modeling literature. The paper makes use of the monthly data on Naira-Dollar exchange rates from 1991 to 2016 which was sourced from the Central Bank of Nigeria statistical bulletin. In order to realize the aim of this study, anewly proposed Quadratic Moving Average Conditional Heteroscedasticity (QMACH) model was employed to investigate the volatility of Naira-Dollar exchange rate. The ADF unit root test reveals that the Naira-Dollar exchange rate return isstationary and this permits the usage of Quadratic Moving Average Conditional Heteroscedasticity (QMACH) methodology. The empirical analysis indicates that Naira-Dollar exchange rate volatility indeed follows the QMACH movement just like it follows both ARCH and GARCH movement. In comparison with ARCH and GARCH modeling, QMACH outperforms both as shownthrough the loglikelihood statistics and the information criteria.

Keywords: Exchange rate; volatility; ARCH-GARCH; QMACH (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:dug:journl:y:2017:i:2:p:106-116

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