Open AccessComparative Analysis of Naira/US Dollar Exchange Rate Volatility using GARCH Variant Modeling
Author(s) -
Agya Atabani Adi,
Amadi W. Kingsley,
David Vincent Hassan
Publication year - 2021
Publication title -
journal of finance and accounting research
Language(s) - English
Resource type - Journals
eISSN - 2663-838X
pISSN - 2617-2232
DOI - 10.32350/jfar.0301.02
Subject(s) - autoregressive conditional heteroskedasticity , exchange rate , heteroscedasticity , economics , econometrics , volatility (finance) , conditional variance , leverage (statistics) , rate of return , monetary economics , financial economics , statistics , mathematics , finance
This paper employed variant GARCH models to examined official, interbank and Bureau de change returns volatilities. Using monthly exchange rate of Naira/USD from January 2004 to September 2020 (2004:1-2020:9), the returns were not normally distributed and stationary at level. Ljung-Box Q statistic and Ljung-Box Q2 statistics of power transformed using power 0.25, 0.5 and 0.75 for conditional heteroscedasticity for lags of 6, 12 and 20 indicated present of conditional heteroscedascity in all returns.
The study found exchange rate volatility in Official, interbank and Bureau de change exchange rate returns were persistent. However, Bureau de change return was more persistent while official exchange rate return was the least persistent. Also, leverage effect exist in all the three exchange rate returns and asymmetric model were the best model for estimating exchange rate return while IGARCH was the worst model to estimate exchange rate return in Nigeria. There is need to incorporate news impact when developing exchange rate policy by monetary authority in Nigeria.