Analysis of Risk Premium Behavior in the Tunisian Foreign Exchange Market During Crisis Period
DOI :
https://doi.org/10.59051/joaf.v10i2.318Mots-clés :
Risk premium, Term premium, Estimation, TND/Euro, TND/USD, CARCH-M, E-GARCHRésumé
In this paper, we empirically examine time-varying risk premia in the Tunisian foreign exchange market by applying GARCH-M modeling to the TND/Euro and TND/USD parities for 1 to 12 months forecasting horizons. Our ultimate objective is to help better manage the parities and to help provide stability to a foreign exchange market where EMH is very weak. Our findings show 1) a heteroscedasticity of residuals for the TND/Euro (all forecasting horizons) and the TND/USD(for 1 month) indicating a lack of stability of their volatility; 2) a non-significant standard deviation of the risk premium against the presence of ARCH and GACH in all cases. On the other hand, the descriptive analysis of the risk premium and term premium variables show an asymmetric distribution. We used, therefore, the asymmetric GARCH model, E-GARCH. Our normality tests show, however, that the GARCH model neither allows for residuals smoothing nor improves the AIC.
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Références
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Frenkel, J. A. (1981) “In Search of the Exchange Risk Premium: A Six Currency Test Assuming Mean-Variance Optimization”, Journal of International Money and Finance, N°1, 255-74.
Gonzalez- Rivera. G, (1998), “Smooth Transition GARCH Models”, Studies in Nonlinear Dynamics and Econometrics, vol.3, 307-333.
Hodrick, R. et Srivastava, S. (1984) “An Investigation of Risk and Return in Forward Foreign Exchange”, Journal of International Money and Finance, vol. 3, N°1, 5-29.
Hsieh, D. (1984) “Tests of Rational Expectations and No Risk Premium in Forward Exchange Markets”, Journal of InternationalEconomics, vol 17, 173-184.
Karfakis. C et Kim. S, (1995), “'Exchange Rates, Interest Rates and Current Account News: Some Evidence from Australia”, Journal of International Money and Finance, vol.14, N°4, 575-595.
Kohler. M (2010), “Exchange rates during financial crises”, BIS Quarterly Review, March 2010, 39-50.
Kouki, S. et Chichti, J. E. (2003), “The Premium Risk in the New Context of the Tunisian Foreign Exchange Market”, International Journal of Finance,vol. 5,N°3, 2708.
Longworth, D. (1981) "Testing the Efficiency of the Canadian-U.S. Exchange Market under the Assumption of no Risk Premium," Journal of Finance, American Finance Association, vol. 36, N°1, 43-49.
Luintel, K. B. et Paudyal, K. (1998) “Common stochastic trends between forward and spot exchange rates”, Journal of International Money and Finance, vol. 17, 279-297.
Mc Kenzie. M, (2002), “The Economics of Exchange Rate Volatility Asymmetry”, International Journal of Finance and Economics, vol.7, N°3, 247-266.
Meese, R. et Rogoff, K. (1983) “Empirical Exchange Rate Models of The Seventies: Are Any Fit to Survive?”, Journal of International Economics, Vol. 14, 3-24.
Nelson. D. B, (1991), “Conditional heteroskedasticity in asset returns: A new approach”, Econometrica, N°59, 347- 370.
Rzepczynski, M.S. (1987) “Risk Premiums in Financial Futures Markets: The Case of Treasury Bond Futures”, Journal of Futures Markets, vol. 7, N°6, 653-662.
Sarno.L et Taylor. M, (2002), “Purchasing Power Parity and the Real Exchange Rate “, IMF Staff Papers, vol. 49, N°1, 65–105.
Stosic. D et al, (2016), “Foreign exchange rate entropy evolution during financial crises”, Physica A, vol 449, 233-239.
Wolff, C. (1987a) “Forward Exchange Rates, Expected Spot Rates and Expectations and Premia: A Signal Extraction Approach”, Journal of Finance, vol. 42, 395-406.
Wolff, C. (1987b), “Time–Varying parameters and the Out-of-sample Forecasting Performance of Structural Exchange Rate Models”, Journal of Business Economics and Statistics, vol. 5, 87-97.
Wolff. C, (1988), “Exchange Rates, Innovations and Forecasting”, Journalof International Money and Finance, vol 7, 49-61.
Bailey. W et Chan. K, (1993), “Macroeconomic Influences and the Variability of the Commodity Futures Basis”, Journal of Finance, 555-573.
Bezemer. D. J, (2011), “Causes of Financial Instability: Don’t Forget Finance”, Working Paper, vol. 665, 1-27.
Bilson, J. F. O. (1981) “The Speculative Efficiency Hypothesis”, Journal of Business, vol. 54, 435-51
Bilson, J.F.O. (1985), “Macroeconomic Stability and Flexible Exchange Rates”, American Economic Review, vol. 75, N°2, 62-67.
Bollerslev, T, (1986), “General Autoregressive Conditional Heteroscedasticity”, Journal of Econometrics, N°31, 307-327.
De Grauwe. P, (2010), “The scientific foundation of dynamic stochastic general equilibrium (DSGE) models”, Public Choice, vol144, 413 - 443.
Engle, R. F, (1982), “Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of UK Inflation”, Econometrica, N°50, 987-100.
Frenkel, J. A. (1981) “In Search of the Exchange Risk Premium: A Six Currency Test Assuming Mean-Variance Optimization”, Journal of International Money and Finance, N°1, 255-74.
Gonzalez- Rivera. G, (1998), “Smooth Transition GARCH Models”, Studies in Nonlinear Dynamics and Econometrics, vol.3, 307-333.
Hodrick, R. et Srivastava, S. (1984) “An Investigation of Risk and Return in Forward Foreign Exchange”, Journal of International Money and Finance, vol. 3, N°1, 5-29.
Hsieh, D. (1984) “Tests of Rational Expectations and No Risk Premium in Forward Exchange Markets”, Journal of InternationalEconomics, vol 17, 173-184.
Karfakis. C et Kim. S, (1995), “'Exchange Rates, Interest Rates and Current Account News: Some Evidence from Australia”, Journal of International Money and Finance, vol.14, N°4, 575-595.
Kohler. M (2010), “Exchange rates during financial crises”, BIS Quarterly Review, March 2010, 39-50.
Kouki, S. et Chichti, J. E. (2003), “The Premium Risk in the New Context of the Tunisian Foreign Exchange Market”, International Journal of Finance,vol. 5,N°3, 2708.
Longworth, D. (1981) "Testing the Efficiency of the Canadian-U.S. Exchange Market under the Assumption of no Risk Premium," Journal of Finance, American Finance Association, vol. 36, N°1, 43-49.
Luintel, K. B. et Paudyal, K. (1998) “Common stochastic trends between forward and spot exchange rates”, Journal of International Money and Finance, vol. 17, 279-297.
Mc Kenzie. M, (2002), “The Economics of Exchange Rate Volatility Asymmetry”, International Journal of Finance and Economics, vol.7, N°3, 247-266.
Meese, R. et Rogoff, K. (1983) “Empirical Exchange Rate Models of The Seventies: Are Any Fit to Survive?”, Journal of International Economics, Vol. 14, 3-24.
Nelson. D. B, (1991), “Conditional heteroskedasticity in asset returns: A new approach”, Econometrica, N°59, 347- 370.
Rzepczynski, M.S. (1987) “Risk Premiums in Financial Futures Markets: The Case of Treasury Bond Futures”, Journal of Futures Markets, vol. 7, N°6, 653-662.
Sarno.L et Taylor. M, (2002), “Purchasing Power Parity and the Real Exchange Rate “, IMF Staff Papers, vol. 49, N°1, 65–105.
Stosic. D et al, (2016), “Foreign exchange rate entropy evolution during financial crises”, Physica A, vol 449, 233-239.
Wolff, C. (1987a) “Forward Exchange Rates, Expected Spot Rates and Expectations and Premia: A Signal Extraction Approach”, Journal of Finance, vol. 42, 395-406.
Wolff, C. (1987b), “Time–Varying parameters and the Out-of-sample Forecasting Performance of Structural Exchange Rate Models”, Journal of Business Economics and Statistics, vol. 5, 87-97.
Wolff. C, (1988), “Exchange Rates, Innovations and Forecasting”, Journalof International Money and Finance, vol 7, 49-61.
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Publié-e
2019-12-30
Comment citer
KOUKI, sonia. (2019). Analysis of Risk Premium Behavior in the Tunisian Foreign Exchange Market During Crisis Period . Journal of Academic Finance, 10(2), 28–38. https://doi.org/10.59051/joaf.v10i2.318
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