An empirical analysis of currency volatilities during the recent global financial crisis |
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| Institution: | 1. Hacettepe University, Faculty of Economics and Administrative Sciences, Department of International Relations, 06800, Beytepe, Ankara, Turkey;2. Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Economics, 06800, Beytepe, Ankara, Turkey;1. Aston Business School, Aston University, Aston Triangle, Birmingham B4 7ET United Kingdom;2. Department of Economics, University of Patras, University Campus, Rio 26504 Greece;1. Toulouse University, Toulouse Business School, 20 Boulevard Lascrosses, 31000 Toulouse, France;2. Department of Economics, Finance and Accounting, National University of Ireland, Maynooth, Co. Kildare, Ireland;1. Lingnan College, Sun Yat-sen University, China;2. International School of Business & Finance, Sun Yat-sen University, China;3. Department of Finance, Tunghai University, Taiwan;4. Department of Economics, Utah State University, USA;1. Institute of Mathematical Sciences, Faculty of Science, University of Malaya, 50603 Kuala Lumpur, Malaysia;2. School of Economics, Faculty of Social Sciences, University of Nottingham Ningbo China, 199 Taikang East Road, Ningbo, 315100, China;1. Department of Mathematics, Southeast University, Nanjing 210096, PR China;2. School of Mathematical Sciences, Kaili University, Kaili 556011, PR China |
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| Abstract: | This paper investigates the impact of the 2008–2009 global financial crisis on the co-movement of 16 currencies in the sample. It employs a two-step atheoretic empirical methodology; it i) applies change point estimation based on geometric Brownian motion to detect change points in volatilities and ii) applies Engle's (2002) dynamic conditional correlation (DCCR) approach to estimate time varying correlations and then, observes the behavior of volatility co-movements during the periods found in (i). The results show that volatilities increase at least twofold with the outbreak of the crisis and there is an inverse relationship between volatility and the duration of the crisis. The DCCRs usually increase with the onset of the crisis and they fluctuate smoothly afterwards while keeping that increased level. |
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