Modelling the volatility of currency exchange rate using GARCH model
This paper attempts to study GARCH models with their modifications, in capturing the volatility of the exchange rates. The parameters of these models are estimated using the maximum likelihood method. The performance of the within-sample estimation is diagnosed using several goodness-of-fit statist...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Universiti Putra Malaysia Press
2002
|
| Online Access: | http://psasir.upm.edu.my/id/eprint/3352/ http://psasir.upm.edu.my/id/eprint/3352/1/Modelling_the_Volatility_of_Currency_Exchange_Rate_Using_GARCH_Model.pdf |
| _version_ | 1848839507041845248 |
|---|---|
| author | Choo, Wei Chong Loo, Sin Chun Ahmad, Muhammad Idrees |
| author_facet | Choo, Wei Chong Loo, Sin Chun Ahmad, Muhammad Idrees |
| author_sort | Choo, Wei Chong |
| building | UPM Institutional Repository |
| collection | Online Access |
| description | This paper attempts to study GARCH models with their modifications, in capturing the volatility of the exchange rates. The parameters of these models are estimated using the maximum likelihood method. The performance of the within-sample estimation is diagnosed using several
goodness-of-fit statistics and the accuracy of the out-of-sample and one-step-ahead forecasts is evaluated using mean square error. The results indicate that the volatility of the RM/Sterling exchange rate is persistent. The within sample estimation results support the usefulness of the
GARCH models and reject the constant variance model, at least within-sample. The Qstatistic and LM tests suggest that long memory GARCH models should be used instead of the short-term memory and high order ARCH model. The stationary GARCH-M outperforms other GARCH models in out-of-sample and one-step-ahead forecasting. When using random walk model as the naive benchmark, all GARCH models outperform this model in forecasting the volatility of the RM/Sterling exchange rates. |
| first_indexed | 2025-11-15T07:12:32Z |
| format | Article |
| id | upm-3352 |
| institution | Universiti Putra Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-15T07:12:32Z |
| publishDate | 2002 |
| publisher | Universiti Putra Malaysia Press |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | upm-33522015-09-11T03:54:40Z http://psasir.upm.edu.my/id/eprint/3352/ Modelling the volatility of currency exchange rate using GARCH model Choo, Wei Chong Loo, Sin Chun Ahmad, Muhammad Idrees This paper attempts to study GARCH models with their modifications, in capturing the volatility of the exchange rates. The parameters of these models are estimated using the maximum likelihood method. The performance of the within-sample estimation is diagnosed using several goodness-of-fit statistics and the accuracy of the out-of-sample and one-step-ahead forecasts is evaluated using mean square error. The results indicate that the volatility of the RM/Sterling exchange rate is persistent. The within sample estimation results support the usefulness of the GARCH models and reject the constant variance model, at least within-sample. The Qstatistic and LM tests suggest that long memory GARCH models should be used instead of the short-term memory and high order ARCH model. The stationary GARCH-M outperforms other GARCH models in out-of-sample and one-step-ahead forecasting. When using random walk model as the naive benchmark, all GARCH models outperform this model in forecasting the volatility of the RM/Sterling exchange rates. Universiti Putra Malaysia Press 2002-09 Article PeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/3352/1/Modelling_the_Volatility_of_Currency_Exchange_Rate_Using_GARCH_Model.pdf Choo, Wei Chong and Loo, Sin Chun and Ahmad, Muhammad Idrees (2002) Modelling the volatility of currency exchange rate using GARCH model. Pertanika Journal of Social Sciences & Humanities, 10 (2). pp. 85-95. ISSN 0128-7702; ESSN: 2231-8534 http://www.pertanika.upm.edu.my/view_archives.php?journal=JSSH-10-2-9 |
| spellingShingle | Choo, Wei Chong Loo, Sin Chun Ahmad, Muhammad Idrees Modelling the volatility of currency exchange rate using GARCH model |
| title | Modelling the volatility of currency exchange rate using GARCH model |
| title_full | Modelling the volatility of currency exchange rate using GARCH model |
| title_fullStr | Modelling the volatility of currency exchange rate using GARCH model |
| title_full_unstemmed | Modelling the volatility of currency exchange rate using GARCH model |
| title_short | Modelling the volatility of currency exchange rate using GARCH model |
| title_sort | modelling the volatility of currency exchange rate using garch model |
| url | http://psasir.upm.edu.my/id/eprint/3352/ http://psasir.upm.edu.my/id/eprint/3352/ http://psasir.upm.edu.my/id/eprint/3352/1/Modelling_the_Volatility_of_Currency_Exchange_Rate_Using_GARCH_Model.pdf |