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Time-Varying Behavior and Asymmetry in EMS Exchange Rates

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  • Nikiforos Laopodis

Abstract

This paper explores the time-varying behavior of five EMS exchange rates namely, the Belgian Franc, Dutch Guilder, French Franc, Italian Lira and the Spanish Peseta vis-a-vis the Deutschemark from 1979 to 1998. The returns were examined using the Sign- and Volatility-Switching GARCH model, which is capable of accounting for potential asymmetries and the reversals in a series' volatility structure. The results point to significant sensitivities of the conditional variances of the French franc, the lira and the peseta to adverse shocks but notable responsiveness to favorable shocks by those of the other rates. Although asymmetry in the volatility structure of all rates is found in the period prior to Germany's reunification in 1990, it vanishes thereafter. Volatility persistence for all rates is noticeable in the first period but becomes more pronounced in the second, [F23, F31]

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 15 (2001)
Issue (Month): 4 ()
Pages: 81-94

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Handle: RePEc:taf:intecj:v:15:y:2001:i:4:p:81-94

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Cited by:
  1. Rahul Verma & Priti Verma, 2005. "Do Emerging Equity Markets Respond Symmetrically to US Market Upturns and Downturns? Evidence from Latin America," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 4(3), pages 193-208, December.
  2. Ahmad Zubaidi Baharumshah & Hooy Chee Wooi, 2007. "Exchange Rate Volatility and the Asian Financial Crisis: Evidence from South Korea and ASEAN-5," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 10(02), pages 237-264.
  3. Bahng, Joshua Seungwook & Shin, Seung-myo, 2003. "Do stock price indices respond asymmetrically?: Evidence from China, Japan, and South Korea," Journal of Asian Economics, Elsevier, vol. 14(4), pages 541-563, August.
  4. N. T. Laopodis, 2003. "Stochastic behaviour of Deutsche mark exchange rates within EMS," Applied Financial Economics, Taylor & Francis Journals, vol. 13(9), pages 665-676.
  5. Arie Preminger & Uri Ben-Zion & David Wettstein, 2006. "Extended switching regression models with time-varying probabilities for combining forecasts," The European Journal of Finance, Taylor & Francis Journals, vol. 12(6-7), pages 455-472.

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