Time variation in the correlation structure of exchange rates: high‐frequency analyses (original) (raw)

The correlation structure of asset returns is a crucial parameter in risk management as well as in theoretical finance. In practice, however, the true correlation structure between the returns of assets can easily become obscured by time variation in the observed correlation structure and in the liquidity of the assets. We employed a timestamped high-frequency data set of exchange rates, namely, the US$deutsche mark and the US$-yen exchange rates, to calibrate the observed time variation in the correlation structure between their