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Long memory in volatility in foreign exchange markets: evidence from selected countries in Africa

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Abstract

This study examines the long memory properties in the volatility of the foreign exchange markets of Egypt, Ghana, Kenya, Nigeria and South Africa. Applying the FIEGARCH model to daily data from June 2, 1997, to December 31, 2021, we find long memory in the second moment of return innovations across all five countries' foreign exchange markets and significant first-order positive autocorrelation. To isolate spurious long memory, we perform a structural break test and find that structural breaks in all five foreign exchange markets do not affect long memory. The findings may have implications for risk management. Historical volatility-based investment methods can generate risk-adjusted returns innovations. Long memory may indicate unexploited profit for risk-seeking speculators and international investors in these countries' financial assets. Also, official intervention should be random and rule-changing to reduce currency market predictability.

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Authors and Affiliations

  1. Department of Finance, Business School, University of Ghana, University of Ghana, P. O. Box LG 78, Legon, Accra, Ghana

    Saint Kuttu, Joshua Yindenaba Abor & Godfred Amewu

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  1. Saint Kuttu
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  2. Joshua Yindenaba Abor
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  3. Godfred Amewu
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Correspondence to Saint Kuttu.

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Financial support from the University of Ghana Business School is gratefully acknowledged.

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Kuttu, S., Abor, J.Y. & Amewu, G. Long memory in volatility in foreign exchange markets: evidence from selected countries in Africa. J Econ Finan (2024). https://doi.org/10.1007/s12197-024-09668-9

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