Abstract:
This paper examines the joint movement and tail dependence structure between the pair
of foreign exchange rates (EUR, USD and GBP) against the GHS, using daily exchange rates data
expressed in GHS per unit of foreign currencies (EUR, USD and GBP) between the time range of
24 February 2009 and 19 December 2019. We use different sets of both static (time-invariant) and
time-varying copulas with different levels of dependence and tail dependence measures, and the
study results reveal positive dependence between all exchange rates pairs, though the dependencies
for EUR-USD and GBP-USD pairs are not as strong as the EUR-GBP pair. The findings also reveal
symmetric tail dependence, and dependence evolves over time. Notwithstanding this, the asymmetric
tail dependence copulas provide evidence of upper tail dependence. We compare the copula results to
DCC(1,1)-GARCH(1,1) model result and find the copula to be more sensitive to extreme co-movement
between the currency pairs. The afore-mentioned findings, therefore, offer forex market players
the opportunity to relax in hoarding a particular foreign currency in anticipation of domestic
currency depreciation.
