Generalized asymmetric power ARCH modelling of exchange rate volatility

Michael McKenzie, Heather Mitchell*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

49 Citations (Scopus)

Abstract

This paper considers the ability of the power ARCH model to capture the stylized features of volatility in 17 heavily traded bilateral exchange rates. This power ARCH model nests a number of models from the ARCH family. The relative merits of these nested ARCH models can be considered using the standard log likelihood ratio test. The results of this paper suggest that in the presence of symmetric responses to innovations in the market, the GARCH(1,1) model is preferred. Where asymmetry is present, than the inclusion of a leverage term is worthwhile as long as a power term is also included.

Original languageEnglish
Pages (from-to)555-564
Number of pages10
JournalApplied Financial Economics
Volume12
Issue number8
DOIs
Publication statusPublished - 2002

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