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

A.B.M. Rabiul Alam Beg and Sajid Anwar

The North American Journal of Economics and Finance, 2012, vol. 23, issue 2, 165-184

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.

Keywords: Leverage effect; Volatility persistence; Regime switching GARCH models; Exchange rates (search for similar items in EconPapers)
JEL-codes: B23 C32 G1 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:23:y:2012:i:2:p:165-184

DOI: 10.1016/j.najef.2012.02.001

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