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ARCH Models and an Application on Exchange Rate Volatility: ARCH and GARCH Models

In: Handbook of Research on Emerging Theories, Models, and Applications of Financial Econometrics

Author

Listed:
  • Lokman Kantar

    (Istanbul Gelisim University)

Abstract

The financial liberalization that began in the last quarter of the twentieth century caused sudden movements in the currencies and financial assets of the countries. These sudden movements are called volatility. Sudden price changes in financial assets made it difficult to predict the future and increased the risks of financial assets. Investors wishing to invest in financial assets wanted to estimate the price of assets correctly to minimize their risks; this has revealed the need for accurate determination of volatility. Since the changes in asset prices are not linear, volatilities in prices are determined by nonlinear methods. This chapter discusses the GARCH models (GARCH, GJR, EGARCH), which are nonlinear models, and tests the validity of these models through a Turkey application on exchange rate volatility. The findings of the study have indicated that the GARCH (1,1) model successfully explained the volatility in the exchange rate.

Suggested Citation

  • Lokman Kantar, 2021. "ARCH Models and an Application on Exchange Rate Volatility: ARCH and GARCH Models," Springer Books, in: Burcu Adıgüzel Mercangöz (ed.), Handbook of Research on Emerging Theories, Models, and Applications of Financial Econometrics, edition 1, pages 287-300, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-54108-8_12
    DOI: 10.1007/978-3-030-54108-8_12
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