Implications of news asymmetries in foreign exchange markets
نویسندگان
چکیده
We employ a multivariate BEKK GARCH model which allows news to affect conditional volatility in an asymmetric manner. The asymmetric model outperforms the standard symmetric model, implying that efficient financial decision makers should not treat good and bad news as homogenous. We estimate the conditional variance and covariance of the Japanese yen, Swiss franc and British pound vis-à-vis the US dollar from January 1971 to June 2005. We find that the volatility of foreign exchange market returns is persistent in response to news originating in own market and between markets. The dynamics of exchange rate volatility show that conditional volatility, covariance and correlation coefficients between exchange rate returns are time varying. JEL Classification: C32, F02, F31, G15
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