DETERMINATION OF VOLATILITY CLUSTERING IN GARCH FAMILY MODELS USING R

DETERMINATION OF VOLATILITY CLUSTERING IN GARCH FAMILY MODELS USING R

ABSTRACT

This work investigated the volatility clustering of exchange rate of Nigeria Naira against the United States of America Dollar. The data used in the present study consist of the monthly exchange rates of the Naira to Dollar from January 1999 to December 2012 obtained from the Central Bank of Nigeria. The main focus is to provide a proper understanding of the theory and empirical working of GARCH family models and to determine volatility clustering. The EGARCH(2,2) model was selected as the best model from point of view of the Mean Absolute Error. The estimated parameters, plots of returns series and plot of conditional variances were used in determining the volatility clustering. There were clear evidences of volatility clustering in Exchange rate of Nigeria naira against United States dollar.