The Arab Monetary Fund released a study on:
“An Analysis of Symmetric and Asymmetric Information in the Volatility Structure of Real Exchange Rates”
As a result of the symmetric analysis, the findings indicate that volatility structures of the real exchange rate markets’ return under study are symmetrically informative.
On the other hand, the asymmetric analysis results indicate that real exchange rate markets’ returns in Saudi Arabia, Egypt and Algeria are asymmetrically informative, and that the markets’ returns are significantly influenced by positive news more than negative news.
The findings of this study will serve as an insightful input for policymakers in the Arab region’s forex markets to make better-informed decisions.
An understanding of the volatility structure of foreign exchange rates is fundamental to assessing investment risks in the forex market. This study, therefore, analyzes the symmetric and asymmetric information in the volatility structure of selected Arab exchange rate markets.
The study applied the EGARCH model for analyzing the volatility structure of selected currencies using the daily data of rate of return of real exchange rates over the period from January 3, 2017, to June 2, 2022. These currencies are the Saudi Riyal, Kuwait Dinar, Bahrain Dinar, Egyptian Pound, Algerian Dinar, Tunisian Dinar, and Moroccan Dirham.
As a result of the symmetric analysis, the findings indicate that volatility structures of all the real exchange rate markets’ return under study are symmetrically informative, and the memory of volatility structures is influenced more by past information, so they should hold over time, except in the case of the Kuwait exchange rate market that shows better stability. On the other hand, the asymmetric analysis results indicate that real exchange rate markets’ returns in Saudi Arabia, Egypt and Algeria are asymmetrically informative, and that the markets’ returns are significantly influenced by positive news more than negative news. However, positive, or negative information or news had no statistically significant effect on the returns of the real exchange rate markets of Kuwait, Bahrain, Tunisia, and Morocco. Basically, the exchange rate markets of Kuwait, Bahrain, Tunisia, and Morocco are not subject to asymmetric effects.
