• East Asian Economic Review
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• v.24 no.1
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• pp.61-87
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• 2020

Five diffusion models are estimated using three different foreign exchange rates to find an appropriate model for each. Daily spot exchange rates expressed as the prices of 1 euro, 1 British pound and 100 Japanese yen in US dollars, respectively denoted by USD/EUR, USD/GBP, and USD/100JPY, are used. The maximum likelihood estimation method is implemented after deriving an approximate log-transition density function (log-TDF) of the diffusion processes because the true log-TDF is unknown. Of the five models, the most general model is the best fit for the USD/GBP, and USD/100JPY exchange rates, but it is not the case for the case of USD/EUR. Although we could not find any evidence of the mean-reverting property for the USD/EUR exchange rate, the USD/GBP, and USD/100JPY exchange rates show the mean-reversion behavior. Interestingly, the volatility function of the USD/EUR exchange rate is increasing in the exchange rate while the volatility functions of the USD/GBP and USD/100Yen exchange rates have a U-shape. Our results reveal that more care has to be taken when determining a diffusion model for the exchange rate. The results also imply that we may have to use a more general diffusion model than those proposed in the literature when developing economic theories for the behavior of the exchange rate and pricing foreign currency options or derivatives.

• Korea Trade Review
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• v.43 no.3
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• pp.169-198
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• 2018

The purpose of this paper is to investigate the impact of exchange rate volatility on the export of Korean machinery intermediate goods to East Asian countries using the export demand model. In order to secure the validity of the estimation of the exchange rate volatility for the export of machinery intermediate goods, various methods of volatility measurement are used including the GARCH model, the moving average standard deviation and the 12-month fixed average standard deviation. The long-term relationship between variables was analyzed by applying the panel cointegration tests and DOLS & FMOLS panel estimations. Analysis results found that prior to the global financial crisis in 2008, the total exports of machinery and exchange rate volatility positively affect the exports of intermediate goods such as general machinery, electronic machinery and transportation equipment, but did not affect the exports of precision machinery intermediate goods. After the global financial crisis, however, exchange rate volatility negatively affected total exports and the exports of all machinery intermediate goods. When analyzing the period before and after the global financial crisis, it had a positive impact on exports of precision machinery intermediate goods and a negative effect on total exports and the exports of other machinery intermediate goods.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.19 no.5
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• pp.426-431
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• 2018

This study examines exchange rate volatility spillovers that affect the exchange rate volatility of Korean currency. For this study, the Japanese yen, British pound, Euro, and Canadian dollar are used as the currencies of developed countries, and the Thai baht, Indonesian rupiah, Singapore dollar, and Australian dollar are used as the currencies of the areas near Korea. The GARCH(1.1) model is employed for weekly data covering the period from January 2009 to December 2017. This study finds that the volatility spillovers from the Canadian dollar, Singapore dollar, and Australian dollar to the Korean won are significant, while the volatility spillovers from the Japanese yen, British pound, Euro, Thai baht, and Indonesian rupiah to the Korean won are insignificant. In terms of the economic system and structure, Japan, Britain, and European countries are at a higher level than Korea, while Thailand and Indonesia are at a lower level than Korea. Canada, Singapore, and Australia are almost at the same level as Korea. Therefore, these results appear to be derived from the phenomenon of exchange rate spillovers among countries with a similar economic system and structures, and contradict the literature, which has argued that exchange rates volatility spillovers occur among countries that are in the same area geographically.

• East Asian Economic Review
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• v.19 no.3
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• pp.275-322
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• 2015

The key objective of this study is to investigate the return and volatility spillover effects among stock market, credit default swap (CDS) market and foreign exchange market for three countries: Korea, the US and Japan. Using the trivariate VAR BEKK GARCH (1,1) model, the study finds that there are significant return and volatility spillover effects between the Korean CDS market and the Korean stock market. In addition, the return spillover effects from foreign exchange markets and the US stock market to the Korean stock market, and the volatility spillover effect from the Japanese stock market to the Korean stock market are both significant.

• East Asian Economic Review
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• v.19 no.1
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• pp.3-38
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• 2015

Fama's (1984) volatility relations show that the risk premium in foreign exchange markets is more volatile than, and is negatively correlated with the expected rate of depreciation. This paper studies these relations from the perspective of goods markets frictions. Using a sticky-price general equilibrium model, we show that near-random walk behaviors of both exchange rates and consumption, in response to monetary shocks, can be derived endogenously. Based on this approach, the paper provides quantitative results on Fama's volatility relations.

• Journal of Korea Port Economic Association
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• v.26 no.4
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• pp.88-100
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• 2010

This paper investigates the influence of industrial activity volatility and exchange rate volatility on import container volume of the Korea during the 1999:1- 2010:9. Conditional variance from the GARCH(1, 1) model is applied as the volatility. The Johansen multivariate cointegration method and the error correction (general-to-specific) method are applied to study the relationship between import volume and its determinants. The empirical results show that volatility has statistically significant negative effect on import volume.

• Korea Trade Review
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• v.48 no.4
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• pp.47-66
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• 2023

Our study aims to explore the impact of China's foreign trade policy measures on the real exchange rate movement. We seek to provide specific references for the formulation of exchange rate and trade-related strategies. Our results indicate that China's bilateral trade is significantly influenced by movements in the Real Effective Exchange Rate (RER). When analyzing the relationship between aggregated trade flow and exchange rate movements, this paper finds that the depreciation of the real exchange rate leads to an increase in China's export volume and a slight decrease in its import volume. Moreover, China's export volume exhibits higher sensitivity to exchange rate volatility compared to the exchange rate level. Furthermore, the empirical findings regarding disaggregated trade flow suggest that different goods are affected differently by exchange rate movements. Capital goods and consumer goods, being in different stages of processing, show no negative impact on their import and export due to exchange rate depreciation. Consequently, we recommend deepening the industry's reform by improving production efficiency and transitioning the industrial structure to a higher processing stage. This approach can effectively reduce the negative impact of exchange rate depreciation.

• Asian Journal of Business Environment
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• v.11 no.4
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• pp.17-29
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• 2021

Purpose: The aim of this study is to explore the dynamic linkage between conditional stock market volatility and macroeconomic uncertainty of Bangladesh. Research design, data, and methodology: This study uses monthly data covering the time period from January 2005 to December 2018. A comprehensive set of macroeconomic variables, namely industrial production index (IP), consumer price index (CPI), broad money supply (M2), 91-day treasury bill rate (TB), treasury bond yield (GB), exchange rate (EX), inflow of foreign remittance (RT) and stock market index of DSEX are used for analysis. Symmetric and asymmetric univariate GARCH family of models and multivariate VAR model, along with block exogeneity and impulse response functions, are implemented on conditional volatility series to discover the possible interactions and causal relations between macroeconomic forces and stock return. Results: The analysis of the study exhibits time-varying volatility and volatility persistence in all the variables of interest. Moreover, the asymmetric effect is found significant in the stock return and most of the growth series of macroeconomic fundamentals. Results from the multivariate VAR model indicate that only short-term interest rate significantly influence the stock market volatility, while conditional stock return volatility is significant in explaining the volatility of industrial production, inflation, and treasury bill rate. Conclusion: The findings suggest an increasing interdependence between the money market and equity market as well as the macroeconomic fundamentals of Bangladesh.

• Journal of Environmental Policy
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• v.10 no.2
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• pp.45-60
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• 2011

An aim of this paper is to test four hypotheses on price volatility in the $CO_2$ emission markets focusing on European Climate Exchange(ECX) in the EU Emission Trading Schemes(EU ETS) and Chicago Climate Exchange(CCX). I expect that, due to an influx of market information, a differently designed exchange market would bring a different price volatility, and various types of emission permits in the same exchange market would result in the same effects on the price volatility. Major findings are that the price volatility is same regardless of the types of emission exchange markets and emission permits comparing the rate of returns. However, comparing the GARCH variance, the volatility between ECX EUAs and CCX-CFIs and the volatility between EUAs(CERs) futures and daily futures are different with the exception of the volatility between EUAs futures and CERs futures. In conclusion, the price volatility depends on the types of exchanges and the types of emission permits.

• The Journal of Asian Finance, Economics and Business
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• v.8 no.2
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• pp.15-23
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• 2021

This study investigates the presence of the day-of-the-week anomaly in exchange rate for 30 developing countries with free floating exchange rate regimes using daily data from January 2, 2011 to December 31, 2019. First, we apply the GARCH panel to estimate the intraday effect for all the sampled countries. Second, we run poolability test to check whether the coefficients of the GARCH panel are the same for all countries sampled. The result of poolability test rejects the homogeneity assumption. This implies that our sample countries contain heterogeneity. Third, we apply mean-group estimation by averaging the coefficients for all individual GARCH estimations. Fourth, we divided our sample of developing countries into three groups based on capital restriction index for the reason that the effect of monetary policy on the exchange rate depends on the degree of capital account liberalization. The empirical evidence for the return equation suggests that Mondays are connected with lower volatility whereas Thursdays experiences higher return compared to Tuesdays. The lowest estimated coefficient for full sample, group 1 and group 2, is Friday, but for group 2 is Thursday. We find similar result for the volatility equations, which show that Monday returns are lower compared to Tuesday.