Open AccessDCC and Analysis of the Exchange Rate and the Stock Market Returns’ Volatility: An Evidence Study of Thailand Country
Author(s) -
Wann-Jyi Horng,
ChingHuei Chen
Publication year - 2010
Publication title -
zi xun shang ye
Language(s) - English
Resource type - Journals
eISSN - 2150-4075
pISSN - 2150-4083
DOI - 10.4236/ib.2010.23027
Subject(s) - bivariate analysis , econometrics , economics , volatility (finance) , stock exchange , exchange rate , stock market , autoregressive conditional heteroskedasticity , stock (firearms) , forward volatility , financial economics , monetary economics , volatility smile , mathematics , statistics , finance , mechanical engineering , paleontology , horse , biology , engineering
This paper studies the relatedness and the model construction of exchange rate volatility and the Thailand’s stock market returns. Empirical results show that we can construct a bivariate IGARCH (1, 1) model with a dynamic conditional correlation (DCC) to analyze the relationship of exchange rate volatility and Thailand’s stock market returns. The average estimation value of the DCC coefficient for these two markets equals to –0.1650, this result indicates that the exchange rate volatility negatively affects the Thailand’s stock market. Empirical result also shows that there do not exist the asymmetrical effect on the Thailand’s exchange rate and Thailand’s stock markets. And the Japan’s stock return volatility truly affects the variation risks of the Thailand stock market. Based on the viewpoint of DCC, the bivariate IGARCH (1, 1) model with a DCC has the better explanation ability compared to the traditional bivariate GARCH (1, 1) model