Modelling Range Volatility in Currency Bid - Ask Spreads: Implications for Financial Resilience and Sustainable Development in Emerging Market Economies

Article DOI: https://doi.org/10.57017/jgsd.v1.i1.02

Author(s):

Susanta DATTA Seva Sadan’s R. K. Talreja College of Arts, Science and Commerce, University of Mumbai, India
Neeraj HATEKAR School of Development, Azim Premji University, Bengaluru, Karnataka, India

Abstract:

This study introduces a novel methodological approach to modelling volatility in currency bid - ask spreads, comparing classical and modern volatility models to assess currency resilience among emerging market economies and categorise them based on relative strength of the estimated parameters. Utilising historical price range data from currency bid–ask spreads, we analyse 27 currencies in the post-global recession period, excluding extraordinary events such as the global oil price plunge in 2014, outbreak of the COVID-19 pandemic and Russia – Ukraine War in 2023. Employing Thomson Reuters daily historical range data, we estimate classical return-based and modern range-based volatility models.

Our results indicate that the range-based volatility model outperforms the return-based standard volatility model in terms of significant estimated parameters and model selection criteria. By leveraging full price range information, the range-based volatility model yields more accurate results. We categorise currencies based on their performance, identifying distinct currency regimes across 27 emerging market economies. This study contributes to the literature by attempting volatility modelling for bid – ask spreads in the currency market. Our findings provide policymakers with a deeper understanding of currency price determination and adjustment, enabling countries to implement safeguard measures to protect their exchange rates from potential volatility spillovers.

© The Author(s) 2024. Published by RITHA Publishing under the CC-BY 4.0. license, allowing unrestricted distribution in any medium, provided the original work, author attribution, title, journal citation, and DOI are properly cited.

How to cite:

Datta, S. & Hatekar, N. (2024). Modelling range volatility in currency bid - ask spreads: Implications for financial resilience and sustainable development in emerging market economies. Journal of Global Sustainability and Development, Volume I, Issue 1, 27 – 40. https://doi.org/10.57017/jgsd.v1.i1.02

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