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Modeling variations in the cedi/dollar exchange rate in Ghana: an autoregressive conditional heteroscedastic (ARCH) models.

Techie Quaicoe M, Twenefour FB, Baah EM, Nortey EN - Springerplus (2015)

Bottom Line: The ARMA (1, 1) was found to be the most suitable model for the conditional mean.From the Box-Ljung test statistics x-squared of 1476.338 with p value 0.00217 for squared returns and 16.918 with 0.0153 p values for squared residuals, the hypothesis of no ARCH effect was rejected at 5% significance level indicating the presence of an ARCH effect in the series.ARMA (1, 1) + GARCH (1, 1) which has all parameters significant was found to be the most suitable model for the conditional mean with conditional variance, thus showing adequacy in describing the conditional mean with variance of the return series at 5% significant level.

View Article: PubMed Central - PubMed

Affiliation: Western Royal Montessori School, P. O. Box 860, Takoradi, Ghana.

ABSTRACT
This research article aimed at modeling the variations in the dollar/cedi exchange rate. It examines the applicability of a range of ARCH/GARCH specifications for modeling volatility of the series. The variants considered include the ARMA, GARCH, IGARCH, EGARCH and M-GARCH specifications. The results show that the series was non stationary which resulted from the presence of a unit root in it. The ARMA (1, 1) was found to be the most suitable model for the conditional mean. From the Box-Ljung test statistics x-squared of 1476.338 with p value 0.00217 for squared returns and 16.918 with 0.0153 p values for squared residuals, the hypothesis of no ARCH effect was rejected at 5% significance level indicating the presence of an ARCH effect in the series. ARMA (1, 1) + GARCH (1, 1) which has all parameters significant was found to be the most suitable model for the conditional mean with conditional variance, thus showing adequacy in describing the conditional mean with variance of the return series at 5% significant level. A 24 months forecast for the mean actual exchange rates and mean returns from January, 2013 to December, 2014 made also showed that the fitted model is appropriate for the data and a depreciating trend of the cedi against the dollar for forecasted period respectively.

No MeSH data available.


ACF and PACF of the squared residuals and squared returns.
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Fig4: ACF and PACF of the squared residuals and squared returns.

Mentions: We continue the analysis with a test for an ARCH effect present in the specified model ARMA (1, 1). We first looked at the ACFs of the squared residual and squared returns. Figure 4 presents the AFC of the squared residuals of the fitted model and squared returns respectively. The ACF showed dependency in both the squared residuals and squared returns. We notice that the residuals are not normally distributed which suggest the presence of ARCH effect in the series. This is confirmed by the Box–Ljung test statistics, 1476.338 with 0.000 p value for the squared returns and 16.9183 and a p value of 0.00153 for the squared residuals. Hence the hypothesis of no ARCH effect is rejected and concluded that there is an ARCH effect in the series.Figure 4


Modeling variations in the cedi/dollar exchange rate in Ghana: an autoregressive conditional heteroscedastic (ARCH) models.

Techie Quaicoe M, Twenefour FB, Baah EM, Nortey EN - Springerplus (2015)

ACF and PACF of the squared residuals and squared returns.
© Copyright Policy - OpenAccess
Related In: Results  -  Collection

License
Show All Figures
getmorefigures.php?uid=PMC4495102&req=5

Fig4: ACF and PACF of the squared residuals and squared returns.
Mentions: We continue the analysis with a test for an ARCH effect present in the specified model ARMA (1, 1). We first looked at the ACFs of the squared residual and squared returns. Figure 4 presents the AFC of the squared residuals of the fitted model and squared returns respectively. The ACF showed dependency in both the squared residuals and squared returns. We notice that the residuals are not normally distributed which suggest the presence of ARCH effect in the series. This is confirmed by the Box–Ljung test statistics, 1476.338 with 0.000 p value for the squared returns and 16.9183 and a p value of 0.00153 for the squared residuals. Hence the hypothesis of no ARCH effect is rejected and concluded that there is an ARCH effect in the series.Figure 4

Bottom Line: The ARMA (1, 1) was found to be the most suitable model for the conditional mean.From the Box-Ljung test statistics x-squared of 1476.338 with p value 0.00217 for squared returns and 16.918 with 0.0153 p values for squared residuals, the hypothesis of no ARCH effect was rejected at 5% significance level indicating the presence of an ARCH effect in the series.ARMA (1, 1) + GARCH (1, 1) which has all parameters significant was found to be the most suitable model for the conditional mean with conditional variance, thus showing adequacy in describing the conditional mean with variance of the return series at 5% significant level.

View Article: PubMed Central - PubMed

Affiliation: Western Royal Montessori School, P. O. Box 860, Takoradi, Ghana.

ABSTRACT
This research article aimed at modeling the variations in the dollar/cedi exchange rate. It examines the applicability of a range of ARCH/GARCH specifications for modeling volatility of the series. The variants considered include the ARMA, GARCH, IGARCH, EGARCH and M-GARCH specifications. The results show that the series was non stationary which resulted from the presence of a unit root in it. The ARMA (1, 1) was found to be the most suitable model for the conditional mean. From the Box-Ljung test statistics x-squared of 1476.338 with p value 0.00217 for squared returns and 16.918 with 0.0153 p values for squared residuals, the hypothesis of no ARCH effect was rejected at 5% significance level indicating the presence of an ARCH effect in the series. ARMA (1, 1) + GARCH (1, 1) which has all parameters significant was found to be the most suitable model for the conditional mean with conditional variance, thus showing adequacy in describing the conditional mean with variance of the return series at 5% significant level. A 24 months forecast for the mean actual exchange rates and mean returns from January, 2013 to December, 2014 made also showed that the fitted model is appropriate for the data and a depreciating trend of the cedi against the dollar for forecasted period respectively.

No MeSH data available.