Do structural breaks in exchange rate volatility matter? Evidence from Asia-Pacific currencies

Bilgin, Mehmet Huseyin, Su, Yongyang and Lau, Chi Keung (2011) Do structural breaks in exchange rate volatility matter? Evidence from Asia-Pacific currencies. İktisat İşletme ve Finans, 26 (304). pp. 57-78. ISSN 1300-610X

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Abstract

Using the U.S. dollar exchange rate return series of three major Asia-Pacific currencies, this paper investigates the empirical relevance of structural breaks in exchange rate volatilities. We find significant evidence of structural breaks in the unconditional variances of all three exchange rate returns, implying unstable GARCH processes for these exchange rates. Various methods of accommodating structural breaks were considered when forecasting daily exchange rate volatility using GARCH models. In sharp contrast to previous evidence from currencies of developed countries, accommodating structural breaks, however, did not improve out-of-sample forecasts of exchange rate volatility, i.e., a simple GARCH(1,1) with expanding window model performed best in forecasting exchange rate volatilities in these emerging markets

Item Type:	Article
Uncontrolled Keywords:	Exchange rate return, structural breaks, volatility, Asia-pacific currencies
Subjects:	N300 Finance
Department:	Faculties > Business and Law > Newcastle Business School
Related URLs:	Publisher
Depositing User:	Chi Keung Lau
Date Deposited:	17 Sep 2013 15:07
Last Modified:	19 Nov 2019 09:52
URI:	http://nrl.northumbria.ac.uk/id/eprint/13524

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