An Additive SARIMA Model for Daily Exchange Rates of the Malaysian Ringgit (MYR) and Nigerian Naira (NGN)
Journal Title: International Journal of Empirical Finance - Year 2014, Vol 2, Issue 4
Abstract
The daily exchange rates of the Nigerian Naira (NGN) and Malaysian Ringgit (MYR) from Wednesday,6th November 2013 to Monday, 21st April 2014 are being modeled by Seasonal Autoregressive Integrated Moving Average (SARIMA) methods. The realization herein referred to as RNER initially had a downward trend to January 2014 after which the trend became positive. That means that initially the Naira appreciated before depreciating relatively after January. A 7-day differencing of RNER produced the series called SDRNER with a fairly horizontal trend. The Augmented Dickey Fuller (ADF) Test declares RNER and SDRNER as non-stationary and stationary respectively. The correlogram of SDRNER has an autocorrelation function (ACF) that cuts off at lag 4 and a partial autocorrelation function (PACF) that cuts off at lag 1 suggesting a SARIMA (1, 0, 4)x(0, 1, 0)7 model fit. The residuals of this model, rather than being uncorrelated, are seasonal with period 7. This seems to invalidate the model. A further but non-seasonal differencing of SDRNER yields the series called DSDRNER which exhibits a generally horizontal trend. All along seasonality is not so obvious. However the ACF of DSDRNER shows seasonality of period 7 as well as the existence of a seasonal moving average component of order one. By Surhatono’s (2011) algorithm a SARIMA (0, 1, 1)x(0, 1, 1)7 model is fitted. With the non-significance of the last coefficient, an additive model is suggestive. This additive model is shown to be the best of the three proposed models.
Authors and Affiliations
Ette Harrison Etuk
Keywords
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