The Glosten-Jagannathan-Runkle-Generalized Autoregressive Conditional Heteroscedastic approach to investigating the foreign exchange forward premium volatility

Nessrine Hamzaoui and Boutheina Regaieg
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Nessrine Hamzaoui: Faculty of Economic Sciences and Management of Tunis, Tunisia
Boutheina Regaieg: Faculty of Law, Economics and Management of Jendouba, Tunisia.

International Journal of Economics and Financial Issues, 2016, vol. 6, issue 4, 1608-1615

Abstract: This paper empirically investigates the volatility dynamics of the EUR/USD forward premium via generalized autoregressive conditional heteroscedastic (GARCH-M) (1,1) and Glosten-Jagannathan-Runkle (GJR)-GARCH (1,1) and GJR-GARCH (1,1)-M models. Our empirical analysis is based on daily data related to the EUR/USD forward premiums. Our daily analysis reveals several results. Firstly, we confirm that the 9 month and 1 year forward premiums are explained in large part by their conditional variances. Secondly, according to the theoretical predictions of the asymmetric framework, we show that the conditional variances equations exhibit an asymmetry in the dynamics of the conditional variance only for the 9 months and 12 months horizons. Thirdly, for the 6 month, 9 month and 12 month forward premiums; the GJR-GARCH in mean effect is totally absent

Keywords: Conditional Volatility; Glosten-Jagannathan-Runkle-Generalized Autoregressive Conditional Heteroscedastic; Generalized Autoregressive Conditional Heteroscedasticity; Volatility Persistence (search for similar items in EconPapers)
JEL-codes: C58 G13 G14 G15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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