Forecasting of Exchange Rate Volatility between Naira and US Dollar Using GARCH Models

Musa Y. (), Tasi’u M. and Abubakar Bello

International Journal of Academic Research in Business and Social Sciences, 2014, vol. 4, issue 7, 369-381

Abstract: Exchange rates are important financial problem that is receiving attention globally. This study investigated the volatility modeling of daily Dollar/Naira exchange rate using GARCH, GJR- GARCH, TGRACH and TS-GARCH models by using daily data over the period June 2000 to July 2011. The aim of the study is to determine volatility modeling of daily exchange rate between US (Dollar) and Nigeria (Naira). The results show that the GJR-GARCH and TGARCH models show the existence of statistically significant asymmetry effect. The forecasting ability is subsequently assessed using the symmetric lost functions which are the Mean Absolute Error (MAE), Root Mean Absolute Error (RMAE), Mean Absolute Percentage Error (MAPE) and Theil inequality Coefficient. The results show that TGARCH model provide the most accurate forecasts. This model will captured all the necessary stylize facts (common features) of financial data, such as persistent, volatility clustering and asymmetric effects.

Keywords: Volatility; GARCH; Asymmetric models; Exchange Rates (search for similar items in EconPapers)
JEL-codes: D53 F31 F43 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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