Modeling persistence, asymmetry and dynamic correlations of exchange rates: numeraire currencies do matter

In this paper, we show that the choice of the numeraire currency does matter in analyzing currency volatility, as numeraire choices other than the US dollar (USD) can yield different results. Several major international currencies that are actively traded in foreign exchange markets, such as the Canadian dollar (CND), Singapore dollar (SGD), and Malaysian ringgit (MYR), are selected and measured against different numeraire choices. There is little evidence of asymmetric effects when the currencies are measured against the USD or the British pound (GBP). However, we find strong support of volatility asymmetry when the Japanese yen (JPY) is the numeraire. Moreover, the evidence of time-varying correlations is more significant for the JPY and GBP bilateral rates. Our findings therefore suggest that the stylized facts of exchange rate volatility in the literature could be incomplete if they are solely based on the USD bilateral rates