Volatility Modeling of Emerging Foreign Exchange Market: A Case of Bangladesh
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This paper examined the volatility models for exchange rate return, including RandomWalk model, AR model, GARCH model and extensive GARCH model, with Normal andStudent-t distribution assumption as well as nonparametric specification test of thesemodels. We fit these models to Bangladesh foreign exchange rate index from January 1999 to December 31, 2012. The return series of Bangladesh foreign exchange rate areleptokurtic, significant skewness, deviation from normality as well as the returns series are volatility clustering as well. We found that student t distribution into GARCH model improves the better performance to forecast the volatility for Bangladesh foreign exchange market. The traditional likelihood comparison showed that the importance of GARCH model in modeling of Bangladesh foreign market, but the modern nonparametricspecification test found that RW, AR and the model with GARCH effect are still grosslymis-specified. All these imply that there is still a long way before we reach the adequate specification for Bangladesh exchange rate dynamics.
Abstract
This paper examined the volatility models for exchange rate return, including RandomWalk model, AR model, GARCH model and extensive GARCH model, with Normal andStudent-t distribution assumption as well as nonparametric specification test of thesemodels. We fit these models to Bangladesh foreign exchange rate index from January 1999 to December 31, 2012. The return series of Bangladesh foreign exchange rate areleptokurtic, significant skewness, deviation from normality as well as the returns series are volatility clustering as well. We found that student t distribution into GARCH model improves the better performance to forecast the volatility for Bangladesh foreign exchange market. The traditional likelihood comparison showed that the importance of GARCH model in modeling of Bangladesh foreign market, but the modern nonparametricspecification test found that RW, AR and the model with GARCH effect are still grosslymis-specified. All these imply that there is still a long way before we reach the adequate specification for Bangladesh exchange rate dynamics.
참고문헌 (13)
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