Sources of volatility persistence: A case study of the U.K. pound/U.S. dollar exchange rate returns |
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Authors: | ABM Rabiul Alam Beg Sajid Anwar |
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Institution: | 1. School of Business, James Cook University, Townsville, QLD 4811, Australia;2. School of Business, University of the Sunshine Coast, Maroochydore DC, QLD 4558, Australia;3. IGSB, University of South Australia, Adelaide, SA 5001, Australia |
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Abstract: | This paper utilizes a new approach to examine the inherent nonlinear dynamics of the exchange rate returns volatility. Specifically, we utilize a regime switching threshold (i) generalized autoregressive conditional heteroskedasticity (RS-TGARCH) and (ii) a fractional generalized autoregressive conditional heteroskedasticity (RS-TFIGARCH) model. The RS-TGARCH model is found to be adequate in analyzing the first two moments of the U.K. pound/U.S. dollar monthly exchange rate returns series. The RS-TFIGARCH is found to be adequate for the daily returns series. The volatility persistence and leverage effects associated with exchange rate returns series are jointly tested by means of a Wald Chi-square test. |
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