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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.


Time plot of standardized residuals, ACF and distribution of standard residual.
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Fig5: Time plot of standardized residuals, ACF and distribution of standard residual.

Mentions: The time plot of the standardized residuals in Figure 5 shows no obvious patterns but we notice a spike around the 148th observation. The ACF of the standardized residuals and squared standardized residuals also show no apparent departure from the model assumptions. The histogram and generalized q-norm q–q plot of the standardized residuals show no departure from model assumptions (i.e. the assumed conditional distribution captured the high kurtosis and the heavy tails of the residuals). This suggests the residuals are independent generalized error distribution hence the model is adequate to describe the changing volatility of the returns.Figure 5


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)

Time plot of standardized residuals, ACF and distribution of standard residual.
© Copyright Policy - OpenAccess
Related In: Results  -  Collection

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

Fig5: Time plot of standardized residuals, ACF and distribution of standard residual.
Mentions: The time plot of the standardized residuals in Figure 5 shows no obvious patterns but we notice a spike around the 148th observation. The ACF of the standardized residuals and squared standardized residuals also show no apparent departure from the model assumptions. The histogram and generalized q-norm q–q plot of the standardized residuals show no departure from model assumptions (i.e. the assumed conditional distribution captured the high kurtosis and the heavy tails of the residuals). This suggests the residuals are independent generalized error distribution hence the model is adequate to describe the changing volatility of the returns.Figure 5

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.