A DCC Analysis of Two Exchange Rate Market Returns Volatility with an Japan Dollars Factor: Study of Taiwan and Korea Exchange Rate Markets

This paper discuss the associations and model construction between Taiwan and Korea’s exchange rate markets during the period from January 2000 to July 2008. The empirical results show that the mutual effects of the Taiwan and the Korea’s exchange rate markets may construct in bivariate IGARCH (1, 1) model. The empirical result also shows that there exists the positive relations between Taiwan and Korea’s exchange rate markets namely two exchange rate market return’s volatility are synchronized influenced, and the average estimation value of the DCC coefficient of two exchange rate markets equals to 0.4073. The Japan’s exchange rate return’s volatility will also affect the variation risk of the Taiwan’s exchange rate market, but the Japan’s exchange rate return’s volatility will not affect the variation risk of the Korea’s exchange rate market. Furthermore, Taiwan and Korea's exchange rate markets do not have the asymmetrical effect in the research period. Keyword Exchange rate market returns, DCC, bivariate IGARCH model, Student’s t distribution, asymmetrical effect.