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A Flexible Parametric Garch Model With An Application To Exchange Rates

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  • Wang, Kai-Li
  • Fawson, Christopher B.
  • Barrett, Christopher B.
  • McDonald, James B.

Abstract

Many asset prices, including exchange rates, exhibit periods of stability punctuated by infrequent, substantial, often one-sided adjustments. Statistically, this generates empirical distributions of exchange rate changes that exhibit high peaks, long tails, and skewness. This paper introduces a GARCH model, with a flexible parametric error distribution based on the exponential generalized beta (EGB) family of distributions. Applied to daily US dollar exchange rate data for six major currencies, evidence based on a comparison of actual and predicted higher-order moments and goodness-of-fit tests favours the GARCH-EGB2 model over more conventional GARCH-t and EGARCH-t model alternatives, particularly for exchange rate data characterized by skewness. Copyright © 2001 John Wiley & Sons, Ltd.
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Suggested Citation

  • Wang, Kai-Li & Fawson, Christopher B. & Barrett, Christopher B. & McDonald, James B., 1998. "A Flexible Parametric Garch Model With An Application To Exchange Rates," Economics Research Institute, ERI Study Papers 28355, Utah State University, Economics Department.
    • Handle: RePEc:ags:usuesp:28355
    DOI: 10.22004/ag.econ.28355
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