Advanced Search
MyIDEAS: Login to save this paper or follow this series

Estimating the COP Exchange Rate Volatility Smile and the Market Effect of Central Bank Interventions: A CHARN Approach

Contents:

Author Info

  • Juan Manuel Julio

    ()

  • Norberto Rodríguez

    ()

  • Héctor Manuel Zárate

    ()

Abstract

In this paper we estimated a volatility model for COP/US under two different samples, one containing the information before the “discretional interventions” started, and the other using the whole sample. We use a nonparametric approach to estimate the mean and “volatility smile” return functions using daily data. For the pre-interventions sample, we found a nonlinear expected return function and, surprisingly, a nonsymmetric “volatility smile”. These lack of linearity and symmetry are related to absolute returns above 1,5% and 1,0%, respectively. We also found that the “discretional interventions” did not shift the mean response function, but moved the expected returns along the line towards the required levels. In contrast, the “volatility smile” tends to increase in a non-symmetric way after accounting for “discretional interventions”. The Sep/29/2004 announcement does not seem to have had any effect on the expected conditional mean or variance functions, but the Dec/17/2004 announcement seems to be related to non-symmetric effects on the volatility smile. We concluded that the announcement of discretional intervention by the monetary authority was more efficient when time and amount were unannounced.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.banrep.gov.co/docum/ftp/borra347.pdf
Download Restriction: no

Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 002605.

as in new window
Length: 26
Date of creation: 30 Jul 2005
Date of revision:
Handle: RePEc:col:000094:002605

Contact details of provider:

Related research

Keywords: Volatility Smile;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Norberto Rodríguez N. & Patricia Siado C., . "Un Pronóstico no Paramétrico de la Inflación Colombiana," Borradores de Economia 248, Banco de la Republica de Colombia.
  2. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2002. "Parametric and Nonparametric Volatility Measurement," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 02-27, Wharton School Center for Financial Institutions, University of Pennsylvania.
  3. Hung, Juann H, 1997. "Intervention strategies and exchange rate volatility: a noise trading perspective," Journal of International Money and Finance, Elsevier, Elsevier, vol. 16(5), pages 779-793, September.
  4. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(1), pages 161-190, February.
  5. Aguilar, Javiera & Nydahl, Stefan, 2000. "Central bank intervention and exchange rates: the case of Sweden," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 10(3-4), pages 303-322, December.
  6. Hardle, W. & Tsybakov, A., 1997. "Local polynomial estimators of the volatility function in nonparametric autoregression," Journal of Econometrics, Elsevier, Elsevier, vol. 81(1), pages 223-242, November.
  7. Michel Beine & Sébastien Laurent, 2003. "Central Bank interventions and jumps in double long memory models of daily exchange rates," ULB Institutional Repository 2013/10435, ULB -- Universite Libre de Bruxelles.
  8. Gourieroux Christian & Monfort Alain, 1991. "Qualitative threshold arch models," CEPREMAP Working Papers (Couverture Orange) 9109, CEPREMAP.
  9. Bossaerts, Peter & Hillion, Pierre, 1991. "Market Microstructure Effects of Government Intervention in the Foreign Exchange Market," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 4(3), pages 513-41.
  10. Neumann, Manfred J. M., 1984. "Intervention in the mark/dollar market: the authorities' reaction function," Journal of International Money and Finance, Elsevier, Elsevier, vol. 3(2), pages 223-239, August.
  11. Torben G. Andersen & Tim Bollerslev, 1998. "Deutsche Mark-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies," Journal of Finance, American Finance Association, American Finance Association, vol. 53(1), pages 219-265, 02.
  12. Hong Liang & Paul Cashin & Hali J. Edison, 2003. "Foreign Exchange Intervention and the Australian Dollar," IMF Working Papers, International Monetary Fund 03/99, International Monetary Fund.
  13. repec:wop:humbsf:1996-68 is not listed on IDEAS
  14. P. BOSSAERTS & C. HAFNER & Wolfgang HÄRDLE, 1996. "Foreign Exchange Rates Have Surprising Volatility," SFB 373 Discussion Papers, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1996,68, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:col:000094:002605. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Clorith Angélica Bahos Olivera).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.