Modeling Exchange Rate Volatility In Sub-Sahara African Economies: Empirical Evidence from South Africa, Nigeria and Ghana

Abstract: The study modeled the series of exchange rates returns in three African economies-South-Africa, Nigeria and Ghana- over the period Jan 2 2002 to June 25 2015. Specifically, the study considered seasonal breaks under the assumption of student-t distribution to examine the underlying properties of these emerging FOREX markets. It was discovered that the three markets exhibit heavy tails and serial correlations. In view of these, the study employed battery of GARCH identifications to model these features and discovered that there are ARCH and GARCH effects, January effects and presence of volatility clustering in the three markets. However, leverage effects were refuted by the GJR model while the EGARCH supports the effects. This discrepancy warranted carrying out conventional diagnostic tests that lent credence to a conclusion that GJR performed better for South-Africa while GARCH takes the lead in Nigeria and Ghana respectively.

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Authors: Arewa Ajibola, Ezirim B. Chinedu, Ayodele Momodu