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Abstract
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Article Information:
Correlation Pattern among “Asian Paper Tigers” Currencies: A Dynamic Conditional Correlation Approach
Rozaimah Zainudin and Jacinta Chan Phooi M’ng
Corresponding Author: Rozaimah Zainudin
Submitted: November 26, 2013
Accepted: December 05, 2013
Published: May 05, 2014 |
Abstract:
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This study attempts to investigate the Dynamic Conditional Correlation (DCC) for eight currencies in the East Asia region, known as Asian Paper Tigers from the period of July 2002 to July 2012. The estimation results generated from DCC model verify that each tested exchange rate's volatility is determined by its own previous volatility shock, however failed to find any evidence with its own residual shock. While for correlation estimation results, we support the evidence that the conditional correlations for all tested pairs currencies are highly affected by their previous correlation. Most of the Asian Paper Tigers currencies recorded a low conditional correlation over the tested sampling period except for CNYJPY, MYRCNY, MYRIDR, MYRTHB, JPYTHB and PHPKRW. The findings further verify that mixing the currencies within different monetary regime plays a significant role in enhancing the currency portfolio diversification results. Although in unstable period, both JPYTHB and MYRJPY are the most promising combinations to be included in the optimal currency investment basket where both pairs have small and stable correlations either during the global recession period or European liquidity crisis period.
Key words: Asian paper tigers, correlation, crisis, currencies, DCC, diversification,
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Cite this Reference:
Rozaimah Zainudin and Jacinta Chan Phooi M’ng, . Correlation Pattern among “Asian Paper Tigers” Currencies: A Dynamic Conditional Correlation Approach. Research Journal of Applied Sciences, Engineering and Technology, (17): 3663-3670.
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ISSN (Online): 2040-7467
ISSN (Print): 2040-7459 |
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