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Volatility Persistence in Naira Exchange Rates: A Pre- and Post- Global Financial Crisis Analysis

AUTHOR(S):

O. S. Yaya

JOURNAL: Journal of the Nigerian Statistical Association Vol. 28, 2016
YEAR: 2016

ABSTRACT

The exchange rates of the naira against other currencies around the world have been affected by market reactions, with the greatest crash during the 2008 global financial crisis. As a result, structural pattern and volatility persistence in the pre-global and post-global crisis periods might have undergone a shift. This paper considered high-frequency naira exchange rate time series for pre-global and post-global crisis periods to investigate the volatility persistence in the financial time series. Long range dependence techniques and volatility modelling approaches were applied on level series, absolute and squared log-returns of six daily naira exchange rate series between 12 October 2001 and 19 December 2014. Significant persistence of volatility in both absolute and square returns of the exchange rates series was observed, and there was the difference in the level of persistence between the two-time series sub-samples, that is, the pre-crisis period seemed to exhibit a lower level of volatility than the post-global crisis period. Further investigation using estimates of volatility modelling confirmed lower volatility persistence in the pre-crisis period, and possible asymmetry in the entire time series sample. The higher persistence of volatility observed in naira exchange rates during the post-crisis period was as a result of the residual impacts of the global crisis on the economy that we experienced till the end of the sampled period.

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2016

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