Title: Extreme co-movements and dependencies in volatility of exchange rate among US dollar and emerging currencies: a GAS-GARCH-student-t model

Authors: Aida Sy; Abdelkader Derbali; Manel Ben Ayeche

Addresses: Critical Accounting Projects Inc., 77 Bleecker St. Suite 305W New York, NY 10012, USA ' Department of Finance, Higher Institute of Management of Sousse, Sousse Tunisia ' Department of Economic Sciences, Faculty of Economic Sciences and Management of Sousse, Sousse Tunisia

Abstract: In this paper, we utilise for the first time the GAS-GARCH-student-t models to examine the volatility of exchange rate returns between US dollar and emerging currencies. Then, the conditional heteroscedasticity models are used to capture the time-varying parameter by the scaled score function of the likelihood function. Methodologically, we employ a daily data of the exchange rate between US dollar and 19 emerging currencies grouped geographically in four regions; Africa, Asia, Europe and America. The period of study is from 1 January 2000 until 31 December 2014. Empirically, we show that the exchange rate returns between US dollar and emerging currencies present a highly volatility and confirm the existence of a greatly time-varying variance in the exchange rate time series obtained after the estimation of the GAS-GARCHstudent-t models. Furthermore, we can observe that the GAS-GARCH-student-t volatility prediction present their maximum into two period; after the terrorist attack on 11 September 2001 and after the financial crisis of 2008. Additionally, our empirical results indicated the presence of highly linkage between US dollar and emerging currencies which prove the economic and financial integration between the USA and the emerging countries.

Keywords: GAS-GARCH-student-t model; exchange rates; US dollar; emerging currencies; extreme co-movements; extreme dependencies; exchange rate volatility; conditional heteroscedasticity; emerging economies.

DOI: 10.1504/AJAAF.2015.073467

African Journal of Accounting, Auditing and Finance, 2015 Vol.4 No.3, pp.246 - 272

Received: 11 Jun 2015
Accepted: 12 Jun 2015
Published online: 09 Dec 2015 *

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