ASYMMETRIC GARCH-TYPE AND HALF-LIFE VOLATILITY MODELLING IN EXCHANGE RATES OF EURASIAN ECONOMIC UNION MEMBERS

Abstract

The variability in the price of a financial asset is called volatility and is often measured with a standard deviation. Empirical studies have shown that many financial asset returns exhibit fat tails (leptokurtosis) and are often characterized by volatility clustering and asymmetry. The aim of this study is to determine the asymmetric GARCH-type modeling of the exchange rates of Belarus, Armenia, Kazakhstan, Kyrgyzstan, and Russia, which constitute the Eurasian Economic Union as of January 1, 2015, as well as to determine the return time to the mean after the shocks. The return series obtained over the daily closing prices of the exchange rates of the countries in question between December 31, 2018 and June 30, 2023 were analyzed using the EGARCH method and the return to mean were calculated.

Keywords

• Foreign Exchange
• Half-life volatility
• EGARCH
• Eurasian Economic Union.

References

1. Abakumova, Juliet and Primierova, Olena (2020). “Globalization and Export Flows Between Eurasian Economic Union Countries: A Gravity Model Approach”. Globalization and its Socio-Economic Consequences. SHS Web of Conference.
2. Agir, Osman and Agir, Omer (2017).” Avrupa Birligi ve Avrasya Ekonomik Birligi Kurulus Sureclerinin Karşilaştirilmasi”. Türkiye Sosyal Araştırmalar Dergisi, 21(1): 103-128.
3. Ahmed, Rizwan Raheem, Vveinhardt, Jolita, Streimikiene, Dalia and Channar, Zahid Ali (2018). “Mean Reversion in International Markets: Evidence from G.A.R.C.H. and Half-Life Volatility Models”. Economic Research-Ekonomska Istrazivanja, 31(1): 1198-1217. https://doi.org/10.1080/133167 7X.2018.1456358
4. Asik, Suhan Alp and Karadam, Duygu Yolcu (2023). “Determinants of trade flows in Eurasian countries: evidence from panel gravity models”. International Congress On Eurasian Economies, (Ed. Ilyas Sozen and Alp H. Gencer), 19-20 September 2023, Izmir – Türkiye, 208-214.
5. Aydin, Uzeyir (2023). “Cok degiskenli GARCH modeliyle doviz kurlarinda oynaklik gecisi”. Dokuz Eylul Universitesi Sosyal Bilimler Enstitusu Dergisi, 25(4): 1647-1662. doi: https://doi.org/10.16953/deusosbil.1366905
6. Baharcicek, Abdulkadir (1996). “Yeni Dunya Duzeni: Baris ve Isbirligi mi, Catisma ve Duzensizlik mi?”. Bilig Turk Dunyasi Sosyal Bilimler Dergisi, 1: 101- 105.
7. Bahsi Kocer, Fatma Sura and Kerem Gokten (2021). “Avrasya Ekonomik Birligi: Olusum, Potansiyel ve Sinirliliklar”. Omer Halisdemir Universitesi Iktisadi ve Idari Bilimler Fakultesi Dergisi, 14(4): 1468-1485. doi: http://doi. org/10.25287/ohuiibf.828563
8. Balaban, Suzana, Zivkov, Dejan and Milenkovic, Ivan (2019). “Impact of an unexplained component of real exchange rate volatility on FDI: Evidence from transition countries”. Economic Systems, 43(3-4): 1-14. https://doi. org/10.1016/j.ecosys.2019.100719

9. Batmaz, Turker (2021). “Avrasya Ekonomik Birligi’nin Uye Ulke Ekonomileri Uzerine Olusturdugu Etkiler-Beklentiler (2010- 2019)”. Omer Halisdemir Universitesi Iktisadi ve Idari Bilimler Fakultesi Dergisi, 14(4): 1529-1543. http:// doi.org/10.25287/ohuiibf.948013
10. Bolgun, Kaan Evren and Baris Akcay (2005). Risk Yonetimi. 2.Baski, Istanbul: Scala Yayincilik.
11. Bollersev, Tim (1986). “Generalized Autoregressive Conditional Heteroscedasticity”. Journal of Econometrics, 31(3): 307-327. https://doi.org/10.1016/0304- 4076(86)90063-1
12. Bozkurt, Gozde and Volkan Ongel (2023). “The impact of generational differences on economic growth: examples from Eurasian countries”. International Congress on Eurasian Economies, (Ed. Ilyas Sozen and Alp H. Gencer), 19-20 September 2023, Izmir – Türkiye, 108-114.
13. DEIK (Dis Ekonomik Iliskiler Kurulu) (2022). Belarus Bilgi Notu. Istanbul.
14. Engle, Robert Fry (1982). “Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation”. Econometrica, 50(4): 987-1007. https://doi.org/10.2307/1912773
15. Engle, Robert Fry and Andrew J. Patton (2001). “What Good Is a Volatility Model?”. Quantitative Finance, 1(2): 237– 245.
16. Fiser, Radovan and Roman Horváth (2010). “Central Bank Communication and Exchange Rate Volatility: A GARCH Analysis”. Macroeconomics and Finance in Emerging Market Economies, 3(1): 25-31. https://doi. org/10.1080/17520840903498099
17. Gbenro, Nathaniel and Richard Kouamé Moussa (2019). “Asymmetric Mean Reversion in Low Liquid Markets: Evidence from BRVM”. Journal of Risk and Financial Management, 12(1):1-19. https://doi.org/10.3390/jrfm12010038
18. Gurbuz, Zehra Yesim (2023). “Financial stability index in Eurasian economies”. International Congress On Eurasian Economies, (Ed. Ilyas Sozen and Alp H. Gencer), 19-20 September 2023, Izmir – Türkiye, 35-43.
19. Hafner, Christian (1998). “Estimating High-Frequency Foreign Exchange Rate Volatility with Nonparametric ARCH Models”. Journal of Statistical Planning and Inference, 68(2): 247-269. https://doi.org/10.1016/S0378-3758(97)00144-4
20. Hamadu, Dallah and Ismaila Adeleke (2009). “On Modelling the Nigerian Currency (Naira) Exchange Rates Against Major Regional and World Currencies”. NUST Journal of Business and Economics, 2(1): 42-52.
21. Hamzaoglu, Halit (2020). “Avrasya Ekonomik Birligi’nin Tarihsel Gelisimi”. Sosyal, Beşeri ve Idari Bilimler Dergisi, 3(6): 463–473.
22. Kocaoglu, A. Mehmet (1996). “Rusya’nin Tarihe Dusen Emperyalist Golgesi”. Bilig Turk Dunyası Sosyal Bilimler Dergisi, 3: 39-52.
23. Kot, Vera, Arina Barsukova, Wadim Strielkowski, Mikhail Krivko and Lubos Smutka (2022). “International Trade in the Post-Soviet Space: Trends, Threats, and Prospects for the Internal Trade within the Eurasian Economic Union”. Journal of Risk and Financial Management, 16(1): 2-19. https://doi.org/10.3390/ jrfm16010016
24. Longmore, Rohan and Wayne Robinson (2004). “Modelling and Forecasting Exchange Rate Dynamics: An Application of Asymmetric Volatility Models”. Bank of Jamaica Working Paper, WP2004/03.
25. Misevic, Petar (2021). “International Trade of the Eurasian Economic Union (EAEU)”. Ekonomski Vjesnik, 34(1): 187- 195. https://doi.org/10.51680/ ev.34.1.14
26. Nelson, Daniel B. (1991). “Conditional Heteroskedasticity in Asset Returns: A New Approach”. Econometrica, 59(2): 347-370. https://doi.org/10.2307/2938260
27. Oikonomikou, Leoni Eleni (2018). “Modeling financial market volatility in transition markets: a multivariate case”. Research in International Business and Finance, 45: 307-322.
28. Ozturk, Yasin (2013). “Avrasya Birligi Projesi ve Turk Dis Politikasina Yansimalari”. Cankiri Karatekin Universitesi Uluslararasi Avrasya Strateji Dergisi, 2(2): 223-244.
29. Pirimbayev, Cusup and Cunus Ganiyev (2010). “Avrasya Ekonomik Toplulugu: Bir Iktisadi Isbirligi Alternatifi”. International Conference on Eurasian Economies, Istanbul, 82-85.
30. Simsek, Nevzat, Hayal Ayca Simsek and Daniyar Nurbayev (2017). “Kazakhstan’s competitiveness in the Eurasian Economic Union Market”. Sosyoekonomi, 25(33): 81-102. doi: https://doi.org/10.17233/sosyoekonomi.319672
31. Sugaipova, Maryam (2015). Eurasian Economic Union, Regional Integration and the Gravity Model. Master of Economic Theory and Econometrics. University of Oslo.
32. Suliman, Zakaria and Suliman Abdalla (2012). “Modelling Exchange Rate Volatility Using GARCH Models: Empirical Evidence from Arab Countries”. International Journal of Economics and Finance, 4(3): 216-229. doi: https://doi. org/10.5539/ijef.v4n3p216
33. Tumanyan, Robert (2018). “Economic Unions and The Gravity Model: Evidence From Eurasian Economic Union”. Asian Journal of Empirical Research, 8(3): 90-98. doi: https://doi.org/10.18488/journal.1007/2018.8.3/1007.3.90.98
34. Ural, Mert (2010). Yatirim Fonlarinda Performans ve Risk Analizi. Ankara: Detay Yayincilik.
35. Ural, Mert, Demireli, Erhan ve Aydin, Uzeyir (2022). Finansal Yatirimlarda Riske Maruz Deger Analizi. Ankara: Seckin Yayincilik.
36. Wang, Alan T. (2006). “Does Implied Volatility of Futures Currency Option Imply Volatility of Exchange Rates”. Physica A: Statistical Mechanics and its Applications, 374(2): 773-782. doi: https://doi.org/10.1016/j.physa.2006.08.040
37. Yoon, Seok and Lee, Ki Seong (2008). “The Volatility and Asymmetry of Won/ Dollar Exchange Rate”. Journal of Social Sciences, 4(1): 7-9. doi: https://doi. org/10.3844/jssp.2008.7.9