Application of Financial Time Series Techniques in Analysing the Volatility of Metical/dollar and Metical/rand Exchange Rates in Mozambique (2010-2020)

Authors

  • Fernando João Nhampossa Universidade Complutense de Madrid, Madrid, Spain
  • Oclidio Francisco Tete Universidade Complutense de Madrid, Madrid, Spain
  • Américo José Fombe Universidade Pedagógica de Maputo, Maputo, Mozambique

Abstract

Exchange rates play an important role in the economic and financial outlook of any country, making it interesting to evaluate and predict their fluctuations. Based on the combination of ARMA (Autoregressive Moving Average) models with ARCH (Autoregressive Conditional Heteroscedasticity) class models, a study was carried out to analyse and predict the volatility of the metical/dollar and metical/rand exchange rates in Mozambique for the period from January 2010 to December 2020. The use of the ARMA-ARCH combination is justified by the fact that ARMA models are not capable of modelling the variation in the variance of financial series over time. During the empirical study, several common stylized facts of financial series were verified, such as the non-stationarity of financial time series, the existence of volatility clusters, among others. It was possible to find three (03) models with good adjustment to model the volatility of exchange rate returns, two (02) for metical/dollar namely: AR(1)-GARCH(1,1) and AR(1)- EGARCH(1,1) and ; one (01) for metical/rand designated AR(1)-ARCH(1). Based on the selection criteria, the results obtained show that for metical/dollar exchange returns the model with the best performance in terms of forecasting is AR(1)-EGARCH(1,1) and for metical/rand exchange returns the AR(1)-ARCH(1) model stands out, being this the only candidate model found for the series. The volatility forecasts made for the two series based on the two (02) best models point to slightly low values for 2021, meaning that there will not be major fluctuations in the short term.

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Published

2025-01-25

How to Cite

Fernando João Nhampossa, Oclidio Francisco Tete, & Américo José Fombe. (2025). Application of Financial Time Series Techniques in Analysing the Volatility of Metical/dollar and Metical/rand Exchange Rates in Mozambique (2010-2020). American Scientific Research Journal for Engineering, Technology, and Sciences, 101(1), 43–70. Retrieved from https://asrjetsjournal.org/index.php/American_Scientific_Journal/article/view/11304

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