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Title: |
Asymmetric Volatility of Exchange Rate Returns under the EMS: Some
Evidence from Quantile Regression Approach for TGARCH Models |
| Author: |
Park, Beum-Jo |
| Author
Affiliation: |
Dankook U |
| Source: |
International Economic Journal, Spring 2002, v. 16, no. 1, pp. 105-125 |
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Publication Date: |
Spring 2002 |
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Abstract: |
This paper investigates the systematic
impact of the European Monetary System (EMS) on asymmetry in volatility
of exchange rates vis-a-vis the Deutsche Mark. It seems plausible that
the symmetric fluctuation band in the EMS affects asymmetric volatility
and this is dominant at extreme returns. To examine the plausibility,
this paper proposes quantile regression for threshold GARCH models (QRTGARCH),
which allows an asymmetric reaction of conditional volatility to shocks
without any rigid distributional assumptions. Further, it is well suited
to precisely capture the asymmetric behaviors of conditional volatility
over different levels of returns. The empirical finding suggests that
the EMS seems to have some systematic effect on the asymmetry in
volatility at moderate level of unpredictable returns. Especially, the
estimation results of the QRTGARCH show that after the EMS conditional
volatility for most of EMS currencies tends to grow more significantly
in reaction to positive shock than negative shock at 0.1 quantile of
returns distribution, so that as the unpredictable returns go down, the
systematic effect of the EMS on asymmetry in volatility becomes more
significant. Impressive as these results may be, the systematic effect
can vary with levels of unpredictable returns. |
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