Amare, Wubishet (2014) The Macroeconomic Determinants of Volatility in Precious Metals Prices in Ethiopia Using GARCH and RiskMetrics Models. Masters thesis, Addis Ababa University.
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PDF (The Macroeconomic Determinants of Volatility in Precious Metals Prices in Ethiopia Using GARCH and RiskMetrics Models)
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Abstract
Modelling and forecasting volatility for the price of precious metals has become a fertile field of empirical research in financial markets. Since volatility is considered as an important concept in many economic and financial applications. The objective of this study was to model and forecast the volatility dynamics in precious metals prices in the Ethiopian market using GARCH family and RiskMetrics models using data from January1998 to January 2014. The price return series of gold and silver show the characteristics of financial time series such as leptokurtic distributions and thus, can suitably be modeled using EWMA and GARCH family models. Empirical investigation was conducted in order to model price volatility using EWMA and GARCH family models. Among the GARCH family models considered in this study, ARMA (0, 1)-GARCH-M (2, 2) model with Student’s t-distributional assumption of residuals and ARMA (1, 3)-EGARCH (3, 2) model with normal distributional assumption of residuals were found to be better fit for price volatility of gold and silver, respectively. Saving interest rate, exchange rate and price of crude oil were found to have statistically significant effect on monthly price volatility of gold. On the other hand, saving interest rate and general inflation rate have statistically significant effect on monthly price volatility of silver. The risk premium effect for GARCH-M (2, 2) model was positive and statistically significant. This implies that an increase in volatility would increase the mean return. The asymmetric term was found to be positive and significant in EGARCH (3, 2) volatility model for sliver. This is an indication that unanticipated increase in price had larger impact on price volatility than unanticipated decrease in the price of silver. A comparison was made between GARCH family models and exponentially weighted moving average (EWMA) model. The study suggests that GARCH class of models appear to be better in volatility forecasting than EWMA model as judged by RMSE and MAE criteria.
| Item Type: | Thesis (Masters) |
|---|---|
| Uncontrolled Keywords: | EWMA model, GARCH model, Precious metals and Volatility. |
| Subjects: | H Social Sciences > HA Statistics H Social Sciences > HF Commerce H Social Sciences > HG Finance H Social Sciences > HJ Public Finance |
| Divisions: | Africana |
| Depositing User: | Selom Ghislain |
| Date Deposited: | 26 Jun 2018 13:16 |
| Last Modified: | 26 Jun 2018 13:16 |
| URI: | http://thesisbank.jhia.ac.ke/id/eprint/4726 |
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