Impact of currency futures on spot rate volatility in Indian foreign exchange market
Keywords:
exchange-rate, ADF, ARCH, GARCH, currency-futures, volatility, heteroskedasticityAbstract
The work aimed going to ascertain the efficacy of the currency futures on cash-market or Spot exchange rates volatility with respect of USD/INR, EURO/INR, GBP/INR & JPY/INR. The daily closing of have been taken from RBI website. Also, the time series data is checked for stationarity using ADF test. Existence of ARCH effect examined in spot rate residual of the return series data and checked with Autoregressive conditional heteroskedasticity L.M. test by using GARCH (1,1) model. Findings of GARCH model shows that large volatility is persistent pre-introduction of currency futures and finding shows presence of time-varying conditional volatility of returns of currencies spot prices at pre-post and total period of currency futures introduction in currency exchange market. The variances in volatility of the exchange rate returns of pre and post introduction of currency futures time periods being analyzed by using statistical tools. Findings shows to be importantly varied and volatility has been came down in the post futures era also series were found more stable in terms of volatility.
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