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The Asymmetric Effect in the Volatility of the South African Rand

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  • Idoko Ahmed Itodo
  • Ojonugwa Usman
  • Michael Maju Abu

Abstract

This study investigates the behaviour of the volatility in the South African Rand/USD exchange rate and its impact on the value of the Rand between 2001 and 2017. The key objectives were to assess the impact of its volatility on its market value, and determine the presence of asymmetric effect in the times path of the volatility, resulting from shocks to its market value. From the estimates of our EGARCH-M (1,1) model, we found the value of the Rand to respond negatively to volatility it is time path, suggesting that the Rand appreciates more in value under conditions of less tranquillity. In addition, we found evidence of asymmetric effect, of shocks to the conditional mean, in the conditional variance of the Rand. The asymmetric effect is such that negative shocks to the conditional mean, which causes the Rand to appreciate, have more impact on next point volatility in the Rand than positive shocks of the same magnitude, which causes depreciation in its value.

Suggested Citation

  • Idoko Ahmed Itodo & Ojonugwa Usman & Michael Maju Abu, 2017. "The Asymmetric Effect in the Volatility of the South African Rand," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 3(3), pages 47-53, September.
    • Handle: RePEc:khe:scajes:v:3:y:2017:i:3:p:47-53
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    Cited by:

    1. A. Adenekan & G. Sanni & A. Itodo, 2019. "Investigating the Impact of Exchange Rate Volatility on Naira Exchange Rate in Nigeria," Economic and Financial Review, Central Bank of Nigeria, vol. 57(3), September.

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    More about this item

    Keywords

    South African Rand; exchange rate; volatility; asymmetric effect; EGARCH-M (1; 1);
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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