This paper considers the generalized autoregressive conditional heteroscedastic approach in modelling exchange rate volatility in a panel of nineteen of the Arab countries using daily observations over the period of 1 st January 2000 to 19 th November 2011. The paper applies both symmetric and asymmetric models that capture most common stylized facts about exchange rate returns such as volatility clustering and leverage effect. Based on the GARCH(1,1) model, the results show that for ten out of nineteen currencies the sum of the estimated persistent coefficients exceed one, implying that volatility is an explosive process, in contrast, it is quite persistent for seven currencies, a result which is required to have a mean reverting variance process. Furthermore, the asymmetrical EGARCH (1,1) results provide evidence of leverage effect for majority of currencies, indicating that negative shocks imply a higher next period volatility than positive shocks. Finally, the paper concludes that the exchange rates volatility can be adequately modelled by the class of GARCH models.Keywords: Exchange rate volatility, Heteroscedasticity, GARCH model, Volatility clustering, Leverage effect IntroductionOver the last few decades, exchange rate movements and fluctuations have become an important subject of macroeconomic analysis and have received a great deal of interest from academics, financial economists and policy makers, particularly after the collapse of the Bretton Woods agreement of fixed exchange rates among major industrial countries. Since then, there has been an extensive debate about the topic of exchange rate volatility and its potential influence on welfare, inflation, international trade and degree of external sector competitiveness of the economy and also its role in security valuation, investment analysis, profitability and risk management. Consequently, a number of models have been developed in empirical finance literature to investigate this volatility across different regions and countries. Well known and frequently applied models to estimate exchange rate volatility are the autoregressive conditional heteroscedastic (ARCH) model advanced by Engle (1982) and generalized (GARCH) model developed independently by Bollerslev (1986) and Taylor (1986).
Stock market volatility in two African exchanges, Khartoum Stock Exchange, KSE (from Sudan) and Cairo and Alexandria Stock Exchange, CASE (from Egypt) is modelled and estimated. The analysis is based on using daily closing prices on the general indices in the two markets over the period of 2 nd January 2006 to 30 th November 2010. The paper employs different univariate specifications of the Generalized Autoregressive Conditional Heteroscedastic (GARCH) model, including both symmetric and asymmetric models. The empirical results show that the conditional variance (volatility) is an explosive process for the KSE index returns series, while it is quite persistent for the CASE index returns series. The results also provide evidence on the existence of a positive risk premium in both markets, which supports the hypothesis of a positive correlation between volatility and the expected stock returns. Furthermore, the asymmetric GARCH models find a significant evidence for asymmetry in stock returns in the two markets, confirming the presence of leverage effect in the returns series.
This paper empirically investigates the impact of human capital on economic growth in Sudan for the period 1982-2009 by using a simultaneous equation model that links human capital i.e. school attainment; and investment in education and health to economic growth, total productivity, foreign direct investment, and human development index. Based on three-stage least squares technique, the empirical results of the paper show that quality of the education has a determinant role in the economic growth; health quality factor has a positive impact on economic growth as expected and total factor productivity which mainly represents the state of technology has adverse effect on economic growth and human development due to the obsolete and old fashion technology.
This paper examines empirically the trade-off between risk (conditional volatility) and expected returns for the Saudi Arabian and Egyptian stock indices over the period of January 1, 2007 to December 30, 2011. The empirical analysis of the paper is carried out by means of the generalized autoregressive conditional heteroscedastic (GARCH) in mean methodology including both symmetric (GARCH-M) and asymmetric (EGARCH-M) models. The results show that the dynamic risk-return relationship is quite different between Saudi Arabian and Egyptian stock markets. A negative but insignificant relationship between expected returns and conditional volatility is found for daily returns in Egypt. In contrast, the conditional mean of the stock returns is positively but insignificantly related to its conditional variance in Saudi stock market a result which is consistent with the theory of a positive risk premium on stock indices which states that higher returns are expected for assets with higher level of risk. The findings of the paper are useful for financial decision making.
This paper aims to build a macroeconometric model for the Sudan economy to be used as an analytical tool to describe the operation of the economy. The model comprises six equations built around the Keynesian identity with 12 macroeconomic variables. Based on error correction model framework, Engle-Granger two steps method was followed and a system of simultaneous equations was estimated by Three Stages Least Squares. The empirical results show that the error correction terms which exemplify the disequilibrium state and the short-run and long-run effects got the right sign and magnitude.
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