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Change in unconditional foreign exchange rate volatility: an analysis of the GBP and USD price of the Euro from 2002 to 2003

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  • Richard Heaney
  • Kerry Pattenden
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    Abstract

    Unconditional foreign exchange rate variance is generally assumed to be constant in analysis of foreign exchange rates. It is noted that there is evidence of a change in unconditional foreign exchange rate variance during the two-year period surrounding the Iraq war, January 2002 to December 2003, for the GBP price of the Euro, although not for the USD price of the Euro. This has implications for the indiscriminate use of models that assume constant unconditional variance, such as the GARCH family of models, in the analysis of foreign exchange rates.

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    File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/13504850500378189&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
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    Bibliographic Info

    Article provided by Taylor and Francis Journals in its journal Applied Economics Letters.

    Volume (Year): 12 (2005)
    Issue (Month): 15 ()
    Pages: 929-932

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    Handle: RePEc:taf:apeclt:v:12:y:2005:i:15:p:929-932

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    References

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    1. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange?," Center for Financial Institutions Working Papers 02-23, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Elena Andreou & Eric Ghysels, 2001. "Detecting Mutiple Breaks in Financial Market Volatility Dynamics," CIRANO Working Papers 2001s-65, CIRANO.
    3. den Haan, Wouter J. & Levin, Andrew T, 2000. "Robust Covariance Matrix Estimation with Data-Dependent VAR Prewhitening Order," University of California at San Diego, Economics Working Paper Series qt0127m2tp, Department of Economics, UC San Diego.
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    Cited by:
    1. Chortareas, Georgios & Jiang, Ying & Nankervis, John. C., 2011. "Forecasting exchange rate volatility using high-frequency data: Is the euro different?," International Journal of Forecasting, Elsevier, vol. 27(4), pages 1089-1107, October.

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