VALUE AT RISK IN EMERGING CURRENCY MARKETS:A CASE STUDY OF TURKISH LIRA

Abstract

Daily VaR numbers have been calculated by using EWMA and GARCH models for the seven currencies. The outcome is GARCH provides slightly more accurate analysis than EWMA. The results are satisfactory for forecasting volatility at 95% and 99% confidence level. These two methods enhance the quality of the VaR models. Interestingly, VaR calculations have predicted the April 1994 and February 2001 devaluation in Turkey. It is also observed that the Turkish Lira’s volatility was low during the crawling peg period. However, after February 2001 free floating period caused the volatility to increase. Therefore, volatility forecasts tend to remain high in the post crises period

Keywords

• Volatility,EWMA,GARCH,VaR,and Currency

VALUE AT RISK IN EMERGING CURRENCY MARKETS:A CASE STUDY OF TURKISH LIRA

Öz

Yedi ayrı para birimi için EWMA ve GARCH modelleri kullanılarak günlük VaR rakamları hesaplanmıştır. GARCH modeli EWMA’ya göre daha iyi bir sonuç vermiştir. %95 ve %99 güven seviyelerinde volatilite tahminleri başarılı bulunmuştur. EWMA ve GARCH modelleri VaR modelinin başarısını artırmaktadır. Beklenmedik bir şekilde, VaR hesaplamaları Nisan 1994 ve Şubat 2001 devalüasyonlarını tahmin edebilmiştir. Ayrıca, kriz sonrası dönemlerde volatilite tahminleri yüksek seyretmektedir. Kontrollü parite dönemlerinde Türk Lirasının volatiletisinin düşük, Şubat 2001’den sonra uygulanan serbest dalgalı dönemde ise volatilitede artış olduğu gözlenmiştir.

Anahtar Kelimeler

• Volatilite,EWMA,GARCH ve yabancı para

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