TITLE

Empirical Testing of Exchange Rate Volatility with the Introduction of Currency Futures in India

AUTHOR(S)
Kumar, Santosh; G., Raju; Tavishi; Shahab, Tanveer; Khatua, Ashish K.
PUB. DATE
February 2011
SOURCE
International Proceedings of Economics Development & Research;2011, Vol. 4, p366
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Indian economy has undergone phenomenal change in terms of currency exposure due to paradigm shift in current and capital account leading to implementation of trading in Currency Futures in August 2008. The present paper documents the impact of currency futures on the volatility of exchange rate before and after its implementation. The volatilities of exchange rate is computed using GARCH, TARCH, EGARCH and Asymmetric Component ARCH using the exchange rate for the two sample periods viz. January 2000 to August 2008 and September 2008 to October 2010. The results of the study reveal that first period has consistent shocks of volatilities having significant ARCH and GARCH influence as compared to moderate ARCH effects in post introduction period. Further it also indicates the significant leverage effects to various behavioral triggers only in pre introduction period. Thus this sort of structural change in volatilities pattern in the post introduction period is attributed to the absorption of information in the currency market on continual basis. On the whole, the results signify the currency futures as optimal hedging tool for the firms having significant exposure in foreign currency.
ACCESSION #
74459078

 

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