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Long memory in volatility in foreign exchange markets: evidence from selected countries in Africa

Author

Listed:
  • Saint Kuttu

    (University of Ghana, University of Ghana)

  • Joshua Yindenaba Abor

    (University of Ghana, University of Ghana)

  • Godfred Amewu

    (University of Ghana, University of Ghana)

Abstract

This study examines the long memory properties in the volatility of the foreign exchange markets of Egypt, Ghana, Kenya, Nigeria and South Africa. Applying the FIEGARCH model to daily data from June 2, 1997, to December 31, 2021, we find long memory in the second moment of return innovations across all five countries' foreign exchange markets and significant first-order positive autocorrelation. To isolate spurious long memory, we perform a structural break test and find that structural breaks in all five foreign exchange markets do not affect long memory. The findings may have implications for risk management. Historical volatility-based investment methods can generate risk-adjusted returns innovations. Long memory may indicate unexploited profit for risk-seeking speculators and international investors in these countries' financial assets. Also, official intervention should be random and rule-changing to reduce currency market predictability.

Suggested Citation

  • Saint Kuttu & Joshua Yindenaba Abor & Godfred Amewu, 2024. "Long memory in volatility in foreign exchange markets: evidence from selected countries in Africa," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(2), pages 462-482, June.
    • Handle: RePEc:spr:jecfin:v:48:y:2024:i:2:d:10.1007_s12197-024-09668-9
    DOI: 10.1007/s12197-024-09668-9
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    More about this item

    Keywords

    Long memory; FIEGARCH; Structural break; Foreign Exchange Market; Africa;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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