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The Glosten-Jagannathan-Runkle-Generalized Autoregressive Conditional Heteroscedastic approach to investigating the foreign exchange forward premium volatility

Author

Listed:
  • Nessrine Hamzaoui

    (Faculty of Economic Sciences and Management of Tunis, Tunisia)

  • Boutheina Regaieg

    (Faculty of Law, Economics and Management of Jendouba, Tunisia.)

Abstract

This paper empirically investigates the volatility dynamics of the EUR/USD forward premium via generalized autoregressive conditional heteroscedastic (GARCH-M) (1,1) and Glosten-Jagannathan-Runkle (GJR)-GARCH (1,1) and GJR-GARCH (1,1)-M models. Our empirical analysis is based on daily data related to the EUR/USD forward premiums. Our daily analysis reveals several results. Firstly, we confirm that the 9 month and 1 year forward premiums are explained in large part by their conditional variances. Secondly, according to the theoretical predictions of the asymmetric framework, we show that the conditional variances equations exhibit an asymmetry in the dynamics of the conditional variance only for the 9 months and 12 months horizons. Thirdly, for the 6 month, 9 month and 12 month forward premiums; the GJR-GARCH in mean effect is totally absent

Suggested Citation

  • Nessrine Hamzaoui & Boutheina Regaieg, 2016. "The Glosten-Jagannathan-Runkle-Generalized Autoregressive Conditional Heteroscedastic approach to investigating the foreign exchange forward premium volatility," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1608-1615.
    • Handle: RePEc:eco:journ1:2016-04-42
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    More about this item

    Keywords

    Conditional Volatility; Glosten-Jagannathan-Runkle-Generalized Autoregressive Conditional Heteroscedastic; Generalized Autoregressive Conditional Heteroscedasticity; Volatility Persistence;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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