Modelling and forecasting long memory in exchange rate volatility vs. stable and integrated GARCH models

Abstract

The purpose of this article is to compare stable, integrated and long-memory generalized autoregressive conditional heteroscedasticity (GARCH) models in forecasting the volatility of returns in the Turkish foreign exchange market for the period 1990-2005 and for the subperiod that covers the floating exchange rate regime 2001-2005. In the first period, we found that long-memory GARCH specifications capture the temporal pattern of volatility for returns in US and Canadian dollars against Turkish lira. For the same period, the temporal pattern of volatility for returns Australian dollar, Japanese yen, Euro and British pound against Turkish lira are best captured by stable GARCH specifications. We found that in the subperiod, only the stable GARCH models are relevant and the return series no longer exhibit the long-memory properties. It was also concluded that all return series except British pound against Turkish Lira have asymmetric effects. Our analysis has shown that when long memory, asymmetry and power terms in the conditional variance are employed, together with the skewed and leptokurtic conditional distribution (of innovations), the most accurate out-of-sample volatility is produced for the first and subperiod. Thus is useful for financial decisions which utilize such forecasts.

Unremunerated reserve requirements, exchange rate volatility, and firm value

“…Table 5 provides summary statistics of the change in the exchange rate (FX) in the sample. During the 2-year period of our study, the return on the THB/USD exchange rate is positively skewed and leptokurtic, which is consistent with the findings of other studies (see e.g., Akgul and Sayyan, 2008). The data shows significant deviations from normality (Hu and Tsoukalas, 1999).…”

An Evaluation of Real Effective Exchange Rate Forecasting With Arch and Garch Models: The Case of Turkey

“…The analysis results confirm that the Bayesian VAR with a Dornbusch prior methodology is better. Akgül and Sayyan (2008) compare long memory, stable and integrated GARCH models in exchange rate volatility in Turkey. The results show that the stable GARCH model has better predictive performance.…”

Abd Dolari/Türk Li̇rasi Dövi̇z Kurunun Otoregresi̇f Koşullu Deği̇şen Varyans Modelleri̇ İle İncelenmesi̇: Türki̇ye Örneği̇

“…Döviz kuru oynaklığı ile ilgili olarak literatürde özellikle Türkiye'deki araştırmacılar tarafından yapılmış pek çok farklı çalışma da mevcuttur. Akgül ve Sayyan (2008)…”