A Study of Currency Market Volatility in India During Its Pre and Post Derivative Period
International Journal Of Core Engineering & Management (IJCEM) Volume 1, Issue 6, September 2014
17 Pages Posted: 9 Oct 2014
Date Written: September 15, 2014
The paper is aimed at examining the impact of introduction of currency derivatives on exchange rate volatility of Pound. The data used in this paper comprises of daily exchange rate of Pound in terms of Indian rupees for the sample period April 2006 to December 2013. To explore the time series properties Unit Root Test and ARCH LM test have been employed and to study the impact on underlying volatility GARCH (1, 1) model has been employed. The results indicate that the introduction of currency futures trading has helped in reducing the exchange rate volatility of the foreign exchange market in India. Further, the results are also indicative of the fact that the importance of recent news on spot market volatility has decreased and the persistence effect of old news has declined with the introduction of currency futures trading.
Keywords: Currency Futures, Exchange Rate, Forex Market, GARCH, Volatility
JEL Classification: C01, C32, C87, G11
Suggested Citation: Suggested Citation