Foreign Exchange Rate Volatility of Indian Rupee/ US Dollar

XI Capital Markets Conference, 21-22 December 2012, Indian Institute of Capital Markets (UTIICM)

13 Pages Posted: 2 May 2013

See all articles by Samsudheen K. Karuthedath

Samsudheen K. Karuthedath

Pondicherry University - Department of Commerce

G. Shanmugasundaram

Pondicherry University - Department of Commerce

Date Written: December 21, 2012

Abstract

This study is an attempt to understand the behavior of Indian foreign exchange rate and its volatility characteristics by using a daily observation of Indian Rupee against US Dollar over the period of 40 years from 1st April 1973 to 31st March 2012. The foreign exchange rate volatility of Indian rupee against US Dollar investigated by using different ARCH family models Such as ARCH(1,1) GARCH(1,1) EGARCH(1,1) TGARCH(1,1) etc... further to measure the impact of structural changes in exchange rate system of India, from pegged exchange rate to the Liberalized Exchange Rate Management System (LERMS) in 1992 and market determinant exchange rate regime in 1993, on exchange rate volatility this study divide the entire sample period in to two sub periods, namely pre implementation period(April 1973 to February 1993) and post implementation(march 1993 to march 2012) period. The study found by the symmetric GARCH (1,1) model that the volatility of Indian foreign exchange rate is highly persistent in all three period and in the case of post LERMS period which is high than that of Pre LERMS sample period. The asymmetric models such as EGARCH and TGARCH were evidenced that there is existence of asymmetric or leverage effect in Indian Foreign Exchange rate in all the three sample periods and that is more in post LERMS period. Over all this study modeled of Indian foreign exchange rate volatility.

Keywords: Foreign Exchange Rate, ARCH

Suggested Citation

Karuthedath, Samsudheen K. and Shanmugasundaram, G., Foreign Exchange Rate Volatility of Indian Rupee/ US Dollar (December 21, 2012). XI Capital Markets Conference, 21-22 December 2012, Indian Institute of Capital Markets (UTIICM) . Available at SSRN: https://ssrn.com/abstract=2258366 or http://dx.doi.org/10.2139/ssrn.2258366

Samsudheen K. Karuthedath (Contact Author)

Pondicherry University - Department of Commerce ( email )

Department of Commerce
Kanchi Mamunivar Centre for Post Graduate Studies
Pondicherry University, Tamil Nadu 605014
India

G. Shanmugasundaram

Pondicherry University - Department of Commerce ( email )

Department of Commerce
Kanchi Mamunivar Centre for Post Graduate Studies
Pondicherry University, Tamil Nadu 605014
India

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