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Higher moments and exchange rate behavior

journal contribution
posted on 01.02.2019, 00:00 authored by S Khademalomoom, Paresh Narayan, Susan SharmaSusan Sharma
This paper uses 15-minute exchange rate returns data for the six most liquid currencies (i.e., the Australian dollar, British pound, Canadian dollar, Euro, Japanese yen, and Swiss franc) vis-à-vis the United States dollar to examine whether a GARCH model augmented with higher moments (HM-GARCH) performs better than a traditional GARCH (TG) model. Two findings are unraveled. First, the inclusion of odd/even moments in modeling the return/variance improves the statistical performance of the HM-GARCH model. Second, trading strategies that extract buy and sell trading signals based on exchange rate forecasts from HM-GARCH models are more profitable than those that depend on TG models.

History

Journal

Financial review

Volume

54

Issue

1

Pagination

201 - 229

Publisher

Wiley

Location

Chichester, Eng.

ISSN

0732-8516

eISSN

1540-6288

Language

eng

Publication classification

C1 Refereed article in a scholarly journal

Copyright notice

2019, The Eastern Finance Association