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A Flexible Parametric Garch Model With An Application To Exchange Rates

  • Wang, Kai-Li
  • Fawson, Christopher B.
  • Barrett, Christopher B.
  • McDonald, James B.

Many asset prices, including exchange rates, exhibit periods of stability punctuated by infrequent, substantial, often one-sided adjustments. Statistically, this generates empirical distributions of exchange rate changes that exhibit high peaks, long tails, and skewness. This paper introduces a GARCH model, with a flexible parametric error distribution based on the exponential generalized beta (EGB) family of distributions. Applied to daily US dollar exchange rate data for six major currencies, evidence based on a comparison of actual and predicted higher-order moments and goodness-of-fit tests favours the GARCH-EGB2 model over more conventional GARCH-t and EGARCH-t model alternatives, particularly for exchange rate data characterized by skewness. Copyright © 2001 John Wiley & Sons, Ltd.

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Paper provided by Utah State University, Economics Department in its series Economics Research Institute, ERI Study Papers with number 28355.

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Date of creation: 1998
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Handle: RePEc:ags:usuesp:28355
Contact details of provider: Web page: http://www.econ.usu.edu/
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