The effects of major events on the volatility of currency exchange rate: an empirical evidence of the European market

Tools

Fu, Jiayi (2019) The effects of major events on the volatility of currency exchange rate: an empirical evidence of the European market. [Dissertation (University of Nottingham only)]

[img] PDF - Repository staff only - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Download (1MB)

Abstract

This paper investigates on the effects of two major events, namely the Brexit and the US-China trade war on the return and volatility of the pound against the dollar (GBP/USD), the euro against the dollar (EUR/USD) and the euro against the franc (EUR/CHF), and also the effects of critical dates during the events on the selected pairs’ return and volatility.

In an attempt to select the most accurate model for forecasting currency volatility, the GARCH-type models under normal and student-t distributions have been applied to analyse their daily forecast performance. The results show that GBP/USD, EUR/USD and EUR/CHF could mostly fit into GARCH-M (1, 1), GARCH (1, 2) and GARCH (1,3), respectively.

Between the Brexit and US-China trade war, the trade dispute causes more significant returns and volatility in the selected currency pairs. For specific dates in the events, the referendum, Article 50 triggering date and the new UK Prime Minister announcement date cause statistically significant return of GBP/USD. Trump’s announcement to treat China’s unfair trading and the third-round tariffs are proved influential to EUR/USD. The value of EUR/CHF are affected by Boris Johnson’s government and the second and third rounds of tariffs. However, when estimating the performance after introducing these variables, both the two events provide a more accurate prediction.

This study intends to provide a foundation and guide for foreign currency participants and institutions which are interested in currencies mentioned in this research to achieve better positions in currency markets.

Item Type: Dissertation (University of Nottingham only)
Depositing User: FU, Jiayi
Date Deposited: 07 Dec 2022 09:21
Last Modified: 07 Dec 2022 09:21
URI: https://eprints.nottingham.ac.uk/id/eprint/58196

Actions (Archive Staff Only)

Edit View Edit View