Premium
Higher Moments and Exchange Rate Behavior
Author(s) -
Khademalomoom Siroos,
Narayan Paresh Kumar,
Sharma Susan Sunila
Publication year - 2019
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12171
Subject(s) - autoregressive conditional heteroskedasticity , liberian dollar , exchange rate , econometrics , economics , pound (networking) , us dollar , variance (accounting) , financial economics , monetary economics , volatility (finance) , computer science , finance , accounting , world wide web
This paper uses 15‐minute exchange rate returns data for the six most liquid currencies (i.e., the Australian dollar, British pound, Canadian dollar, Euro, Japanese yen, and Swiss franc) vis‐à‐vis the United States dollar to examine whether a GARCH model augmented with higher moments (HM‐GARCH) performs better than a traditional GARCH (TG) model. Two findings are unraveled. First, the inclusion of odd/even moments in modeling the return/variance improves the statistical performance of the HM‐GARCH model. Second, trading strategies that extract buy and sell trading signals based on exchange rate forecasts from HM‐GARCH models are more profitable than those that depend on TG models.