Browsing by Subject "GARCH"

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  • Ahlstedt, Monica (1998)
    Suomen Pankki. E 11
    This study uses GARCH modelling to estimate and forecast conditional variances and covariances of returns calculated from a set of financial market series: twelve markka exchange rates, twelve corresponding shortterm euro interest rates and the Finnish short-term interest rate, the Finnish long-term interest rate, the Finnish all-share index and real estate prices. The variances are specified through univariate estimation and the analysis is then extended to a portfolio of assets by presenting and applying two alternative methods for covariance modelling.The first method is based on the assumption of identical autocorrelation structure for variances and covariances.The other method is based on the assumption of constant correlation.Both methods are flexible and enable the extension of the analysis to a large number of return series. The study then derives a forecast function from the models estimated from pooled data for variances and covariances of exchange rates and interest rates and from individual data for the other rates, in the form of a weighted moving average of past squared residuals.GARCH forecasts for the variances of individual return series as well as portfolios are compared in an ex post context, on the one hand, to two alternative forecasts based on piecewise homoscedastic variance models and, on the other, to actual data on squared returns. The empirical results in the study show that the estimated variance-covariance models display a high degree of similarity both across the variables and across subsamples (ie across exchange rate regimes); GARCH(1,1) seems to represent the underlying conditional variance process fairly well.In terms of persistence in the variance processes, which is nearly IGARCH(l,1), the estimated models are also remarkably similar both for the individual variables and for pooled data.Hence parsimony suggests using an integrated process to represent volatility in the sample.The study also argues that the estimated GARCH models represent a methodological and empirical improvement over those estimates typically used eg in value-at-risk calculations. Keywords: time-dependent volatility, GARCH estimation, value-at-risk models
  • Ahlstedt, Monica (1997)
    Suomen Pankin keskustelualoitteita 7/1997
    The study derives a theoretically and empirically founded procedure for volatility estimation and forecasting of daily financial return series for use in value-at-risk model frameworks.GARCH modelling is applied to account for time varying heteroskedastic conditional variances and covariances.Through univariate estimation, the historical conditional variance models are specified within a group of twelve markka-denominated exchange rates, a group of thirteen short-term interest rates, the long-term interest rate and Finland's general stock market index.Within these groups, the method of principal components is used to detect common short-term factors driving the high frequency stochastic processes.Spectral analysis is applied to identify the length and regularity in the cyclical behaviour of the estimated conditional variances and their principal components.Since there turned out to be a great similarity in the univariate estimation results within groups of rates, GARCH estimation on pooled data was performed to force the rates within groups into the same model.The estimated models on pooled data were found to be integrated in variance with closely similar parameter values for both exchange rates and interest rates. Since a general multivariate framework is not possible to apply to the amount of series in this study due to the huge number of parameters to be identified, the covariances were calculated in two step-wise ways from the univariately estimated variances.First, assuming dependence between the autocorrelation structure of the conditional variances and covariances, univariately estimated parameters of the conditional variance models were used in identifying the pairs of conditional covariances.Second, assuming constant correlations, conditional covariances were estimated using joint information on the correlation coefficients of the GARCH standardized residuals and the univariate conditional variances. The first method is only applicable in estimating covariances within groups, the second is also applied in estimating the covariances between groups. Although the magnitude or direction of the expected changes in rates cannot be forecast, the estimated GARCH structure makes it possible to forecast the expected future variances.By developing the parameter structure estimated on pooled data, a theoretically and empirically founded procedure is suggested to replace the usual ad hoc decision process of selecting the sample period and the weight structure for estimating variances and covariances. Keywords: Time-dependent volatility, GARCH estimation, value-at-risk models
  • Smirnova, Elena (2004)
    BOFIT Online 1/2004
    The paper examines the impact of American Depositary Receipt (ADR) listings on the return of underlying Russian stocks.The contribution of this paper is twofold.First, it looks at a new sample of ADRs issued by Russian companies.Second, the technique used to estimate the market model is different from the previous studies.The returns are modeled to follow a GARCH process, as opposed to the usual OLS procedure, which assumes homoscedasticity in residual returns.Average abnormal returns and cumulative average abnormal returns are calculated for the [-25, +25] event window, with the ADR listing date being the event date.The results indicate a significant negative abnormal local market return on an ADR listing day.Return volatilities after the listing are compared to those before the listing. Eleven out of sixteen companies experienced increased volatility of local returns after cross-listing
  • Saleem, Kashif (2008)
    BOFIT Discussion Papers 8/2008
    Published in Research in International Business and Finance, Volume 23, Issue 3, September 2009, Pages 243-256
    This study considers the linkage of the Russian equity market to the world market, examin-ing the international transmission of the Russia's 1998 financial crisis utilizing the GARCH-BEKK model proposed by Engle and Kroner (1995). We find evidence of direct linkage between the Russian equity market and the world markets with regards to returns and volatility. While the weakness of the linkage suggests that the Russian equity market was only partially integrated into the world market at the time of the crisis, evidence of contagion is clear. Keywords: Multivariate GARCH; Volatility spillovers; Russian Financial crisis; contagion; partial integration JEL Classification: C32, G15.
  • Francis, Bill B.; Hasan, Iftekhar; Hunter, Delroy M. (2002)
    Bank of Finland. Discussion papers 9/2002
    This paper, which is motivated by the literature on international asset pricing and recent work on exchange rate determination, investigates dynamic relationships between major currency and equity markets.Using a multivariate GARCH framework, we examine conditional cross-autocorrelations between pairs of national equity markets and related exchange rates.This provides a parsimonious way of testing mean-volatility relationships in currency and equity markets and re-examining the robustness of relationships between equity markets, while controlling for exchange rate effects.We find that the relationship between currency and equity markets is bi-directional, significant, persistent, and independent of the relationship strictly between equity markets, and that it is better captured by the conditional second moments Key words: international asset pricing, exchange rate determination, equity markets, relationships between currency and equity markets. JEL classification numbers: G12, G14, G15, F31
  • Hyytinen, Ari (1999)
    Suomen Pankin keskustelualoitteita 19/1999
    This paper investigates the evolution of the (conditional) volatility of returns on three Scandinavian markets (Finland, Norway and Sweden) over the turbulent period of the past decade, namely the overlapping periods of financial liberalisation, drastically changing macroeconomic conditions and banking crisis. We find that even over this relatively turbulent period volatility is in most cases successfully captured by past volatility and shocks to past volatility, ie by a (symmetric) GARCH process.In each country banking crisis has induced regime shifts in (unconditional) volatility.We also find evidence for cross-country volatility spillovers during the banking crisis episodes.The estimated volatility patterns suggest that even though the volatility of returns was of very high magnitude during the years of banking crisis, developments within the banking industry were not reflected in market uncertainty until all the damage had been done and the severe problems afflicting banks began to be realised in full. Key words: GARCH, conditional volatility, banking crisis, volatility spillovers
  • Spargoli, Fabrizio; Zagaglia, Paolo (2008)
    Bank of Finland Research Discussion Papers 26/2008
    We study the term structure implications of the fiscal theory of price level determination. We introduce the intertemporal budget constraint of the government in a general equilibrium model in continuous time. Fiscal policy is set according to a simple rule whereby taxes react proportionally to real debt. We show how to solve for the prices of real and nominal zero coupon bonds. Keywords: bond pricing, fiscal policy, mathematical methods JEL classification numbers: D9, G12
  • Hartwell, Christopher A. (2014)
    BOFIT Discussion Papers 6/2014
    The volatility of financial markets has been a relevant topic for transition economies, as the countries of Central and Eastern Europe and the former Soviet Union have seemingly en-dured high levels of volatility in their financial sectors during the transition process. But what have been the determinants of this financial volatility? This paper posits that institutional changes, and in particular the volatility of various crucial institutions, have been the major causes of financial volatility in transition. Examining 20 transition economies over various time-frames within the period 1993-2012, this paper applies the GARCH family of models to examine financial volatility as a function of institutional volatility. The results from the EGARCH and TGARCH modelling supports the thesis that more advanced and more stable institutions help to dampen financial sector volatility at their levels, while institutional volatility feeds through directly to financial sector volatility in transition. Keywords: institutions, financial sector, volatility, transition, GARCH, EGARCH, TGARCH JEL Codes: G20, O43, P30
  • Ahlstedt, Monica (1995)
    Suomen Pankin keskustelualoitteita 37/1995
    Selvityksessä pyritään määrittelemään valuuttakurssien ja korkojen muutosten empiiriset tilastolliset jakaumat ajalta 1.10.1986 - 31.12.1988.Selvitys kattaa kahdentoista valuutan markkakurssin ja kolmentoista valuutan markkinakoron jakaumien estimoinnin.Perushypoteesina on oletus kiinteäparametrisesta tai aikariippuvasta random walk -prosessista.Työssä tutkitaan havaintofrekvenssin ja viikonpäivän vaikutusta.Työn tulokset indikoivat, että valuuttakurssien päivähavainnot noudattavat tarkasteluperiodilla GARCH (1,1) mallia.Korkojen jakaumille tämän ehdollisen varianssin mallin käyttökelpoisuus on rajoitetumpi.Valuuttakurssien osalta tulokset tukevat kansainvälisiä dollarikursseille tehtyjä tutkimuksia.Koroille tehtyjä vastaavia selvityksiä ei ole löytynyt. Tutkimuksessa haetaan tilastollisesti optimaalista aikaväliä, joka olisi riittävän lyhyt, jotta parametrien vakio-oletus voitaisiin hyväksyä mutta samalla tarpeeksi pitkä, jotta havainnot riittäisivät parametrien tehokkaaseen estimointiin. Lopputuloksena päädytään arvioon, että neljännesvuoden päivähavaintoihin rajoitetulla otoskoolla voidaan valuuttakurssien ja korkojen suhteellisia muutoksia tyydyt- tävällä tarkkuudella kuvata kiinteäparametrisella normaalijakaumalla. Selvitys on osa pankkien markkinariskien seurannan kehittämistyötä.Empiirinen työ on suoritettu jo vuonna 1990 ja tutkimuksen tuloksia on sen jälkeen sovellettu valvonnassa pankkien korko- ja valuuttakurssiriskien arvioimiseksi.Tarve julkistaa nyt tutkimuksen tulokset on syntynyt siitä, että työn alla olevassa jatkoselvityksessä on tarkoitus verrata markan kellutusvaiheen aineistosta estimoituja valuuttakurssien ja korkojen tilastollisia jakaumia tässä työssä saatuihin empiirisiin tuloksiin markan rajoitetun liikkumavälin ajalta. Jatkoselvityksessä käytetään myös hyväksi tämän tutkimuksen joitakin tuloksia em. viikonpäivävaikutuksien arviointia, joita ei enää estimoida uudella havaintoaineistolla.
  • Colavecchio, Roberta; Funke, Michael (2006)
    BOFIT Discussion Papers 16/2006
    Published in China Economic Review 19 (2008) 635-648
    This paper uses multivariate GARCH techniques to study volatility spillovers between the Chinese non-deliverable forward market and seven of its Asia-Pacific counterparts over the period January 1998 to March 2005.To account for the time-variability of conditional correlation, a dynamic correlation structure is included in the volatility model specification.The empirical results demonstrate that the renminbi non-deliverable forward (NDF) has been a driver of various Asian currency markets but that such co-movements exhibit a substantial degree of heterogeneity.As to the determinants of the magnitude of these comovements, we test the relevance of potential factors and find that it is the degree of real and financial integration, in particular, that exerts the largest influence on volatility transmission. Keywords: China, renminbi, Asia, forward exchange rates, non-deliverable forward market, multivariate GARCH models JEL-Classification: C22, F31, F36