Economic Liberalization and Conditional Volatility of Exchange Rate in Sub‐Saharan Africa: Asymmetric GARCH Analysis

Abstract: For small open economies, an understanding of movements in the exchange rate is imperative in analyzing trade and capital flows. In addition, reliable forecasting of exchange rate volatility is important in risk‐taking assessment and investment decision‐making, both of which are critical to long‐term growth. Using an asymmetric GARCH‐type approach, this paper examines the implications of economic liberalization on the stochastic behavior of the exchange rate series in a sample of sub‐Sahara African (SSA) countries over the 1970–2004 period. The results indicate that exchange rate volatility is variable, and is less volatile under fixed exchange rate regime (pre‐economic liberalization) and higher under flexible regime (post‐economic liberalization), that is, it is asymmetric. For most of the countries, the EGARCH and TGARCH models are robust to parameter stability and gives better forecasting performance compared to the standard GARCH model.     

Output Growth and its Volatility: The Gold Standard through the Great Moderation

This study examines the relationship between U.S. output growth and its volatility over the period 1876:I to 2012:II. We adjust the data for outliers and structural breaks. We employ generalized autoregressive conditional heteroskedasticity (GARCH) and exponential GARCH (EGARCH) specifications. Normality and homoskedasticity appear only in the GARCH or EGARCH model that corrects for the outliers. When including the break in the mean equation, high volatility persistence remains. After also accommodating the breaks in the variance equation, the integrated GARCH effect proves spurious, either for the symmetric or the asymmetric model. Finally, our empirical results suggest that the finding of higher output growth volatility stimulating output growth and higher output growth reducing its volatility obtained from the symmetric GARCH‐in‐mean (GARCH‐M) model also proves spurious as a result of the emergence of an asymmetric effect. Our more appropriately specified asymmetric EGARCH‐M model suggests positive volatility‐in‐mean and level effects in the long‐period real gross national product series.     

The Efficacy of Official Intervention in the Foreign Exchange Market in Malawi

Abstract: This paper analyses the effectiveness of foreign exchange market interventions by the Reserve Bank of Malawi (RBM). We use a GARCH (1, 1) model to simultaneously estimate the effect of intervention on the mean and volatility of the Malawi kwacha. Results from the GARCH model indicate that net sales of US dollars by the RBM depreciate, rather than appreciate, the kwacha. Empirically, this implies the RBM ‘leans against the wind’, that is, the RBM intervenes to reduce, but not reverse, exchange rate depreciation. On the other hand, results for the GARCH model for the post‐2003 period indicate the RBM intervention in the market stabilizes the kwacha. In general, results for the entire study period show that the RBM interventions have been associated with increased exchange rate volatility, with the only exception being the post‐2003 period. The implication of this finding is that intervention can only have a temporary influence on the exchange rate.     

Examining Volatility Persistence and News Asymmetry in Soybeans Futures Returns

Four alternative generalized autoregressive conditional heteroscedasticity (GARCH), and three asymmetric GARCH models (EGARCH, TGARCH and APARCH) are used to examine the presence of volatility persistence and news asymmetry in soybeans futures data. Presence of fat tails in the data series resulted in applying Student’s-t and generalized error distributions in addition to Gaussian normal distribution. The results reveal that soybean return series exhibit volatility characteristics typical of a financial time series. The findings of this study indicate that the leverage effect was absent for soybeans suggesting that positive news causes more volatility to the commodity than negative news. Results further suggest that the fit of the GARCH models is improved by applying t-distribution errors. The diagnostic tests reveal that GARCH models are correctly specified and among all the competing models, APARCH (1,3) model with t-distribution performed best in capturing the volatility.     

人民币实际汇率波动对中欧进出口贸易影响的实证研究

本文通过建立GARCH模型量度了人民币对欧元实际汇率的波动性,并运用协整检验模型、误差修正模型、脉冲响应函数和方差分解技术就人民币实际汇率变动对中国与欧元区之间进出口贸易的影响进行分析。分析结果表明,中国对欧元区出口在长期内随汇率波动而增加,而进口却随汇率波动而减少;在短期内汇率波动推动中国进口,抑制中国出口。人民币升值在长期内给双边出口均造成伤害,但对中国出口伤害更大;在短期内人民币贬值将对中国进出口均有推动作用。本文分析还表明,在长期内,中国对欧元区出口收入效应远远大于欧元区对华出口收入效应;在短期内,中国实际收入变动对欧元区出口表现负向冲击,而欧元区实际收入变动对中国出口表现为正向冲击。中国汇率制度改革对中国出口欧元区产生推动作用,对欧元区出口产生抑制作用,且前者大于后者。实际汇率水平及其波动性变化对欧元区对华出口变动的解释力高于中国实际收入水平变化的解释力,而对于中国对欧元区出口的变动,欧元区实际收入水平变动的解释力高于实际汇率水平及其波动性变化的解释力。     

基于日间高频交易数据的股市波动研究

本文利用上证综指在2005～2009年内的日间高频数据,通过已实现波动率这一概念对我国股市在这5年间的波动特性做了研究。进一步地,根据已实现波动率序列的统计特征,对其进行长记忆建模,并对模型的波动率预测效果与常规GARCH模型的预测效果做了对比分析。基于上证综指的研究结果表明,利用了日间高频信息的波动率模型在波动率预测上,比仅利用了收盘信息的GARCH模型更有优势。     

Cherry Picking,Disclosure Quality,and Comprehensive Income Reporting Choices: The Case of Property‐Liability Insurers*

Statement of Financial Accounting Standards No. 130: Reporting Comprehensive Income encourages enterprises to report comprehensive income on a performance statement rather than on a statement of equity. We investigate the reporting decisions of 82 publicly traded property‐liability insurers that are fairly evenly split in their choice. Our results demonstrate that insurers with a tendency to manage earnings through realized securities' gains and losses (that is, cherry pickers), as well as insurers with a reputation for poor disclosure quality, are more likely to report comprehensive income in a statement of equity. Apparently, these insurers face the highest cost of transparency. We do not find a relation between the reporting decision and the volatility of comprehensive income relative to the volatility of net income. Our findings that insurers' comprehensive income reporting choices are a reflection of their proclivity toward cherry picking as well as their level of disclosure quality should be of interest to standard‐setters because of the controversy over standard‐setters' preference for mandating all firms to report comprehensive income in a performance statement.     

Do Monetary Policy Announcements Affect Exchange Rate Returns and Volatility of Returns? Some Evidence from High‐Frequency Intra‐Day South African Data

This paper examines the temporal effect of domestic monetary policy surprises on both returns and volatility of returns of the South African rand/U.S. dollar exchange rate. The analysis in this “event study” proceeds using intra‐day minute‐by‐minute exchange rate data, repo rate data from the South African Reserve Bank's scheduled monetary policy announcements, and market consensus repo rate forecasts. A carefully selected sample over the period August 2003 to November 2017 ensures that the change in monetary policy is exogenous to the exchange rate. We find statistically and economically significant responses in intra‐day high‐frequency South African rand/U.S. dollar exchange rate returns and volatility of exchange rate returns to domestic interest rate surprises, but anticipated changes have no bearing on exchange rate returns and their volatility. The empirical results also indicate that there is an instantaneous response of the rand/dollar exchange rate to monetary policy surprises and that monetary policy news is an important determinant of the exchange rate until at least 42 minutes after the pronouncement – suggesting a high degree of market “efficiency” in its mechanical sense (although not necessarily in the deeper economic‐informational sense) in processing this information. Essentially, the asymmetric GARCH results exhibit no leverage effects – positive and negative information shocks have symmetric effects on conditional variance.     

MACROECONOMIC UNCERTAINTY AND CONDITIONAL STOCK MARKET VOLATILITY IN SOUTH AFRICA*

This paper analyses how systematic risk emanating from the macroeconomy is transmitted into stock market volatility using augmented autoregressive Generalised Autoregressive Conditional Heteroscedastic (AR‐GARCH) and vector autoregression (VAR) models. Also examined is whether the relationship between the two is bidirectional. By imposing dummies for the 1997‐1998 Asian and the 2007‐2009 sub‐prime financial crises, the study further analyses whether financial crises affect the relationship between macroeconomic uncertainty and stock market volatility. The findings show that macroeconomic uncertainty significantly influences stock market volatility. Although volatilities in inflation, the gold price and the oil price seem to play a role, it is found that volatility in short‐term interest rates and exchange rates are the most important, suggesting that South African domestic financial markets are increasingly becoming interdependent. Finally, the results show that financial crises increase volatility in the stock market and in most macroeconomic variables, and, by so doing, strengthen the effects of changes in macroeconomic variables on the stock market.     

Long memory volatility dependency,temporal aggregation and the Korean currency crisis: the role of a high frequency Korean won (KRW)–US dollar ($) exchange rate

Using a new type of 5 min high frequency dataset consisting of real time Korean won (KRW)–US dollar ($) exchange rates, this paper characterizes the volatility process of high frequency returns. The semi-parametric local Whittle estimation is applied to estimate the long memory dependency in the volatility process of the 5 min KRW–$ returns and the temporally aggregated returns data. The estimation results present that the underlying long memory dependency in the volatility process appears to be generally consistent across various temporally aggregated returns and that the exogenous shocks and the multiple breaks associated with the crisis in the market seem to induce greater long memory dependency during the crisis.     

LONG MEMORY IN SOUTHERN AFRICAN STOCK MARKETS

The paper examines long memory in equity returns and volatility for stock markets in Botswana, South Africa and Zimbabwe using the ARFIMA‐FIGARCH model in order to assess the efficiency of these markets in processing information. The findings are diverse. Significant long memory is demonstrated in the equity returns of Botswana; while, in South Africa this result is not statistically different from zero. For Zimbabwe returns are characterised by an anti‐persistent process. Furthermore, all the markets investigated provide evidence of long memory in volatility with the exception of Botswana where there is no evidence of volatility persistence and hence the return from taking risk in this market cannot be predicted on the basis of previous values.     

上海A、B股市场收益率波动性对比研究及预测

运用GARCH(1,1)-M模型对样本期内上海A、B股市场收益率波动性进行了对比研究及预测。结果显示:上证A、B股指数收益率序列均存在"ARCH/GARCH现象";上海A、B股市场中,期望收益与期望风险正向变动;上海A股市场记忆期长于B股市场;长期中,上海B股市场预期收益将超过A股市场。进一步结合基本面情况可知,上海B股市场具有相对较高的长线投资价值。     

Remittance Income Volatility and Labor Supply in Mexico

Using the 2000 through 2008 waves of the Encuesta Nacional de Ingresos y Gastos de los Hogares (ENIGH), Mexico's income and expenditure survey, we estimate the way in which volatility surrounding the inflows of international remittances impacts male and female labor supply. We find that male and female labor supply decreases with higher levels of remittance income. Additionally, increases in remittance income volatility raise the employment likelihood of men and women, as well as the hours worked by employed women. Since men are more likely than women to be employed full‐time, women may be better suited to respond to increased volatility in remittance income by raising the number of hours worked. Overall, the findings are suggestive of labor supply being used as a buffer against income shortfalls and increased volatility in remittance inflows.     

External Shocks and High Volatility in Consumption in Low‐Income Countries

According to the well‐known concept of consumption smoothing, the volatility of consumption is low even when income is volatile; this is confirmed by data from G7 countries. Surprisingly, however, consumption volatility in many low‐income countries is nontrivially higher than income volatility. Here I examine what causes high consumption volatility in low‐income countries. In general, volatile consumption makes consumers worse off. Therefore, understanding the causes of high consumption volatility can contribute to improving welfare in low‐income countries by suggesting measures to assist in the stabilization of consumption. Unlike much previous research, I focus on international factors when explaining high consumption volatility. The results suggest that external shocks, which are far more volatile in low‐income countries than in industrialized countries, strongly swing consumption. By capturing these mechanisms, the model I use successfully accounts for consumption volatility's differences between the sample low‐income country and sample industrialized country.     

The Impact of Political Instability on Inflation Volatility in Africa

This paper investigates whether political instability leads to volatile inflation using a panel of 49 African countries. The study uses novel measures of political instability, particularly the state failure index and state fragility index. In the field of political instability and inflation volatility, this is the first study to measure inflation volatility as the conditional variance of inflation estimated from GARCH (1, 1) model. Adopting the system‐generalized method of moments estimator for linear dynamic panel models for the sample period 1985‐2009, the study documents a positive statistically significant effect of political instability on inflation volatility.     

An Examination of the Statistical Significance and Economic Relevance of Profitability and Earnings Forecasts from Models and Analysts

In this paper, we propose and empirically test a cross‐sectional profitability forecasting model which incorporates two major improvements relative to extant models. First, in terms of model construction, we incorporate mean reversion through the use of a two‐stage partial adjustment model and inclusion of a number of additional relevant determinants of profitability. Second, in terms of model estimation, we employ least absolute deviation (LAD) analysis instead of ordinary least squares because the former approach is able to better accommodate outliers. Results reveal that forecasts from our model are more accurate than three extant models at every forecast horizon considered and more accurate than consensus analyst forecasts at forecast horizons of two through five years. Further analysis reveals that LAD estimation provides the greatest incremental accuracy improvement followed by the inclusion of income subcomponents as predictor variables, and implementation of the two‐stage partial adjustment model. In terms of economic relevance, we find that forecasts from our model are informative about future returns, incremental to forecasts from other models, analysts’ forecasts, and standard risk factors. Overall, our results are important because they document the increased accuracy and economic relevance of a cross‐sectional profitability forecasting model which incorporates improvements to extant models in terms of model construction and estimation.     

Exchange Rate Volatility and Trade: An Empirical Investigation from Cross‐country Comparison

Abstract: This paper investigates empirically the impact of exchange rate volatility on the trade flows of six countries over the quarterly period of 1980–2005. The impact of a volatility term on trade is examined by using an Engle‐Granger residual‐based cointegrating technique. The major results show that increases in the volatility of the real exchange rate, approximating exchange‐rate uncertainty, exert a significant negative effect on trade for South Korea, Pakistan, Poland and South Africa and a positive effect for Turkey and Hungary in the long run.     

Volatility of real GDP: some evidence from the United States,the United Kingdom and Japan

This paper presents an empirical analysis of the volatility of real growth rates for the United States, the United Kingdom and Japan. Three ARCH-type models (GARCH, T-GARCH and E-GARCH) were estimated utilizing the maximum likelihood method. The GARCH version provided the best statistical fit, suggesting that volatility is variable and is symmetric than asymmetric to real growth rates in GDP.     

Measuring the Accuracy of Federal Reserve Forecasts

Markets across the world pay enormous attention to every economic forecast made by Federal Reserve governors, particularly those from the chair. This article develops a new way that the academic literature can assess the accuracy of these Federal Reserve forecasts. In particular, our proposed method allows for both general and specific predictions to be assessed, while also accounting for the macroeconomic volatility that prevails at the time of the forecast. To develop this measure, we expand upon a methodology proposed by the Wall Street Journal to score the accuracy of forecasts made by the Fed. Our results show that Alan Greenspan was consistently the most accurate forecaster among Fed governors, while the most recent chair in our sample, Janet Yellen, has performed relatively poorly. More generally, we find that the chairs have become less accurate over time with their forecasts and have also tended to make fewer specific predictions.