Modelling LKR/USD Exchange Rate Volatility: GARCH Approach
Journal Title: IOSR Journal of Economics and Finance (IOSR-JEF) - Year 2018, Vol 9, Issue 5
Abstract
Exchange Rate Volatility is a most prominent term in the financial econometrics. This Study aimed to estimate the changes in volatility of exchange rates focused on LKR/USD for the period of January 2000 to August 2018. Exchange rate return series were tested incorporating GARCH (Generalized Autoregressive Conditional Heteroscedasticity) family models with daily basis data. All the models are investigated using three different distributional approaches, Student t, Normal(Gaussian) and Generalized Error Distribution focusing on Mean variance and the conditional variance with the AR(2) effect. In-sample data were tested using forecast estimates of MASE, MAE and MAPE. Under the assumption generalized error distribution, best fitted model of measuring the LKR/USD daily exchange rate volatility is the AR(2)-GARCH(1,1) model. Final model is statistically significant at 5% confidence level and the residuals are deviate from the normality. This study reveals that the LKR/USD exchange rate returns are responding faster with the global Market fluctuations.
Authors and Affiliations
A. K. M. D. P. KandeArachchi
Keywords
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- EP ID EP414929
- DOI 10.9790/5933-0905024454.
- Views 224
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