<p>Recent volatility in crude oil prices has affected economies around the world, especially the US economy, which is the largest consumer of oil. This paper focuses on how shocks to volatility of crude oil prices may affect future oil prices. The paper uses daily crude oil price data for the past 10 years to test and model the oil price volatility by fitting different variations of GARCH including a univariate asymmetric GARCH model to the series. Tests show high persistence and asymmetric behavior in oil price volatility, and reveal that negative and positive news have a different impact on oil price volatility. These results will help interested observers better understanding of the energy markets and has important consequences for the overall economy.</p>
Recent economic downturn in the United States and Europe has affected major currencies around the world. This paper focuses on the behavior of exchange rates over the past decade to study how volatility pattern of these exchange rates responds to any exogenous shocks. The paper focuses on persistence and asymmetry in volatility of major exchange rates due to exogenous shocks. The paper employs a univariate GARCH and an EGRACH model to test the persistence and asymmetry of exchange rate volatility using data from the past decade plus. The results show high persistence and asymmetric behavior in volatility implying that the effect of good news on exchange rates is different from the effect of bad news. The results of this paper have important implications for foreign exchange investors and will provide a better understanding of the foreign exchange market to interested observers.
There has always been a great interest in learning about changes in the volatility patterns of stocks and other time series due to exogenous shocks. Researchers and investors have also been curious to study the effect of unanticipated shocks on persistence of volatility over time. This paper studies three major indexes and utilizes the Iterated Cumulative Sums of Squares (ICSS) algorithm to capture time periods of sudden changes in volatility. The findings suggest that persistence of shocks to volatility is not as high as generally perceived. Volatility persistence declines significantly when regime shifts are combined with a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model. This paper provides important implications for investors and financial researchers.
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