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Characterization of exchange rate regimes based on scaling and correlation properties of volatility for ASEAN-5 countries

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  • Muniandy, Sithi V.
  • Uning, Rosemary
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    Abstract

    Foreign currency exchange rate policies of ASEAN member countries have undergone tremendous changes following the 1997 Asian financial crisis. In this paper, we study the fractal and long-memory characteristics in the volatility of five ASEAN founding members’ exchange rates with respect to US dollar. The impact of exchange rate policies implemented by the ASEAN-5 countries on the currency fluctuations during pre-, mid- and post-crisis are briefly discussed. The time series considered are daily price returns, absolute returns and aggregated absolute returns, each partitioned into three segments based on the crisis regimes. These time series are then modeled using fractional Gaussian noise, fractionally integrated ARFIMA (0,d,0) and generalized Cauchy process. The first two stationary models provide the description of long-range dependence through Hurst and fractional differencing parameter, respectively. Meanwhile, the generalized Cauchy process offers independent estimation of fractal dimension and long memory exponent. In comparison, among the three models we found that the generalized Cauchy process showed greater sensitivity to transition of exchange rate regimes that were implemented by ASEAN-5 countries.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378437106003670
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    Bibliographic Info

    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 371 (2006)
    Issue (Month): 2 ()
    Pages: 585-598

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    Handle: RePEc:eee:phsmap:v:371:y:2006:i:2:p:585-598

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    Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

    Related research

    Keywords: Volatility; Long-range dependence; Locally self-similar;

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    Cited by:
    1. Kin-Yip Ho & Albert K Tsui, 2008. "Volatility Dynamics in Foreign Exchange Rates : Further Evidence from the Malaysian Ringgit and Singapore Dollar," Finance Working Papers 22571, East Asian Bureau of Economic Research.

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