Characterization of exchange rate regimes based on scaling and correlation properties of volatility for ASEAN-5 countries

Sithi V. Muniandy and Rosemary Uning

Physica A: Statistical Mechanics and its Applications, 2006, vol. 371, issue 2, 585-598

Abstract: Foreign currency exchange rate policies of ASEAN member countries have undergone tremendous changes following the 1997 Asian financial crisis. In this paper, we study the fractal and long-memory characteristics in the volatility of five ASEAN founding members’ exchange rates with respect to US dollar. The impact of exchange rate policies implemented by the ASEAN-5 countries on the currency fluctuations during pre-, mid- and post-crisis are briefly discussed. The time series considered are daily price returns, absolute returns and aggregated absolute returns, each partitioned into three segments based on the crisis regimes. These time series are then modeled using fractional Gaussian noise, fractionally integrated ARFIMA (0,d,0) and generalized Cauchy process. The first two stationary models provide the description of long-range dependence through Hurst and fractional differencing parameter, respectively. Meanwhile, the generalized Cauchy process offers independent estimation of fractal dimension and long memory exponent. In comparison, among the three models we found that the generalized Cauchy process showed greater sensitivity to transition of exchange rate regimes that were implemented by ASEAN-5 countries.

Keywords: Volatility; Long-range dependence; Locally self-similar (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:371:y:2006:i:2:p:585-598

DOI: 10.1016/j.physa.2006.03.030

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