Volatility Modeling of Emerging Foreign Exchange Market: A Case of Bangladesh
This paper examined the volatility models for exchange rate return, including Random Walk model, AR model, GARCH model and extensive GARCH model, with Normal and Student-t distribution assumption as well as nonparametric specification test of these models. We fit these models to Bangladesh foreign e...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Emerald Publishing
2013-12-01
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| Series: | Journal of International Logistics and Trade |
| Online Access: | https://www.emerald.com/insight/content/doi/10.24006/jilt.2013.11.3.19/full/pdf |
| _version_ | 1797612154586660864 |
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| author | Laila Arjuman Ara Mohammad Masudur Rahman |
| author_facet | Laila Arjuman Ara Mohammad Masudur Rahman |
| author_sort | Laila Arjuman Ara |
| collection | DOAJ |
| description | This paper examined the volatility models for exchange rate return, including Random Walk model, AR model, GARCH model and extensive GARCH model, with Normal and Student-t distribution assumption as well as nonparametric specification test of these models. 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 are leptokurtic, 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 nonparametric specification test found that RW, AR and the model with GARCH effect are still grossly mis-specified. All these imply that there is still a long way before we reach the adequate specification for Bangladesh exchange rate dynamics. |
| first_indexed | 2024-03-11T06:38:21Z |
| format | Article |
| id | doaj.art-f4959baf407444ec955d1e5e3c3bc43c |
| institution | Directory Open Access Journal |
| issn | 1738-2122 2508-7592 |
| language | English |
| last_indexed | 2024-03-11T06:38:21Z |
| publishDate | 2013-12-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Journal of International Logistics and Trade |
| spelling | doaj.art-f4959baf407444ec955d1e5e3c3bc43c2023-11-17T10:48:17ZengEmerald PublishingJournal of International Logistics and Trade1738-21222508-75922013-12-01113193910.24006/jilt.2013.11.3.19Volatility Modeling of Emerging Foreign Exchange Market: A Case of BangladeshLaila Arjuman Ara0Mohammad Masudur Rahman11School of Business Studies Southeast University, Dhaka, Bangladesh2Bangladesh Foreign Trade Institute, TCB Building, 1 Karwan Bazar, Dhaka, BangladeshThis paper examined the volatility models for exchange rate return, including Random Walk model, AR model, GARCH model and extensive GARCH model, with Normal and Student-t distribution assumption as well as nonparametric specification test of these models. 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 are leptokurtic, 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 nonparametric specification test found that RW, AR and the model with GARCH effect are still grossly mis-specified. All these imply that there is still a long way before we reach the adequate specification for Bangladesh exchange rate dynamics.https://www.emerald.com/insight/content/doi/10.24006/jilt.2013.11.3.19/full/pdf |
| spellingShingle | Laila Arjuman Ara Mohammad Masudur Rahman Volatility Modeling of Emerging Foreign Exchange Market: A Case of Bangladesh Journal of International Logistics and Trade |
| title | Volatility Modeling of Emerging Foreign Exchange Market: A Case of Bangladesh |
| title_full | Volatility Modeling of Emerging Foreign Exchange Market: A Case of Bangladesh |
| title_fullStr | Volatility Modeling of Emerging Foreign Exchange Market: A Case of Bangladesh |
| title_full_unstemmed | Volatility Modeling of Emerging Foreign Exchange Market: A Case of Bangladesh |
| title_short | Volatility Modeling of Emerging Foreign Exchange Market: A Case of Bangladesh |
| title_sort | volatility modeling of emerging foreign exchange market a case of bangladesh |
| url | https://www.emerald.com/insight/content/doi/10.24006/jilt.2013.11.3.19/full/pdf |
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