Long memory in volatility in foreign exchange markets: evidence from selected countries in Africa

Saint Kuttu, Joshua Yindenaba Abor () and Godfred Amewu ()
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Joshua Yindenaba Abor: University of Ghana, University of Ghana
Godfred Amewu: University of Ghana, University of Ghana

Journal of Economics and Finance, 2024, vol. 48, issue 2, No 10, 462-482

Abstract: Abstract This study examines the long memory properties in the volatility of the foreign exchange markets of Egypt, Ghana, Kenya, Nigeria and South Africa. Applying the FIEGARCH model to daily data from June 2, 1997, to December 31, 2021, we find long memory in the second moment of return innovations across all five countries' foreign exchange markets and significant first-order positive autocorrelation. To isolate spurious long memory, we perform a structural break test and find that structural breaks in all five foreign exchange markets do not affect long memory. The findings may have implications for risk management. Historical volatility-based investment methods can generate risk-adjusted returns innovations. Long memory may indicate unexploited profit for risk-seeking speculators and international investors in these countries' financial assets. Also, official intervention should be random and rule-changing to reduce currency market predictability.

Keywords: Long memory; FIEGARCH; Structural break; Foreign Exchange Market; Africa (search for similar items in EconPapers)
JEL-codes: C22 G15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s12197-024-09668-9

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