The statistical properties of daily foreign exchange rates: 1974–1983 (original) (raw)
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Statistical study of foreign exchange rates, empirical evidence of a price change …
Journal of Banking & …, 1990
In this paper we present a statistical analysis of four foreign exchange spot rates against the U.S. Dollar with several million intra-day prices over 3 years. The analysis also includes gold prices and samples of daily foreign exchange prices over 15 years. The mean absolute changes of logarithmic prices are found to follow a scaling law against the time interval on which they are measured. This empirical law holds although the distributions of the price changes strongly differ for different interval sizes.Systematic variations of the volatility are found even during business hours by an intra-day analysis of price changes. Seasonal heteroskedasticity is observed with a period of one day as well as one week as the result of an analogous intra-week analysis; taking this into account is necessary for any future study of intra-day price change distributions and their generating process. The same type of analysis is also made for the bid-ask spreads.
The statistical distribution of daily exchange rate price changes: dependent vs independent models
1999
This study evaluates recently reported, conflicting, models for the probability distributions of daily exchange rate price changes. The conflicting conclusions arise from differing data sets, noncomparable evaluation criteria, and failures to directly compare the candidate models. This study evaluates the mixed jump diffusion model, a discrete mixture of normals distribution model, and four alternative forms of the generalized autoregressive conditional heteroscedastic (GARCH) model. We estimate parameters for each model using maximum likelihood techniques; the goodness-of-fit for the models is measured using Schwarz's criteria. In contrast to some recently published results, none of our autoregressive conditional variance models dominated the others; also none of these models consistently dominated the two models that assume returns are independent. In the cases where there is significant first-order heteroscedasticity in the data set, the GARCH models are superior only 50% of the time. In the most recent subperiod (Jan 88 -Dec 92) tests show that for three of the four currencies the first-order heteroscedasticities are less pronounced than in prior periods. Curiously, first-order GARCH parameters are significant in cases where tests for first-order heteroscedasticity are not significant; this result suggests that our models may be misspecified. Results indicate that independence should not be overlooked, and future research should not focus on the search for the perfect GARCH model, but attempt to develop models that incorporate the pronounced volatility clustering found in exchange rate price series and the independent behavior that exists in the data. These conclusions are consistent with recent findings related to high frequency (intra-daily) returns.
An examination of the distribution of intra-daily exchange rate changes
Global Finance Journal, 1992
This paper examines the effectiveness of three different stochastic processesstable, compound normal, and mixed diffusion-jump processes-in modeling intra-daily exchange rate changes. The findings indicate that neither the single normal nor the stable process is the appropriate model. Furthermore, the compound normal distribution seems to have a better fit than the mixed diffusionjump process. Such a finding is contrary to those of earlier studies on daily exchange rate changes. Since most models of international asset pricing employ continuous-time analysis, the intra-daily findings should be more relevant and informative than those of daily data.
Carnegie-Rochester Conference Series on Public Policy, 1981
This paper is intended to accomplish two tasks. First, exchange-rate models of the sticky-price and flexible-price varieties respectively are checked for their consistency with two key empirical regularities: (1) the observed pattern of price-level vs. exchange-rate volatility, and (2) the observed pattern of spot exchange-rate vs. forward exchange-rate volatility. Second, a widely neglected reason for exchange-rate volatility, activist monetary policy is studied. It is found that both sticky-price and flexible price models explain the empirical regularities rather well. Further, if prices are sticky it is found that exchange-rate overshooting may be empirically non-trivial.
Differences between foreign exchange rate regimes: the view from the tails
Journal of International Money and …, 1992
In the literature on the empirical unconditional distribution of foreign exchange rate returns there is indication that the type of distribution function is related to the form of exchange rate regime. The analysis has been hampered by the nonnestedness of ...
Statistical Properties of Sri Lankan Exchange Rate Behaviour: An Empirical Analysis
The main purpose of this study is to explore the main characteristics of statistial behaviour of (nominal) Sri Lankan exchange rate aginst to US dollar,(LKR/US$). This study used daily spot exchange rate time series collected from Central Bank, Sri Lanka. The study covers the time period from 2008 to 2010, which represents 722 trading days. The sample period was divided into two. One period was from . Graphical techniques, Kernel density function, autocorrelation function, and GARCH models were used to analyse the behaviour of the exchange rate in this study. The results show that basic statistical properties of Sri Lankan exchange rate series was a nonlinear, asymetric shape, nonstationary series with stochastic trend, I(1). The change in the logarithm of the daily exchange rate (Exchange rate return, r t ) series has fatter tails, serial dependence, volatility clustering and ARCH effects in both sample periods. During the period I, the exchange rate was depreciating, distribution was positively skewed, larger volatility (SD=3.4) , non normal and nonstationary. During the period II, exchange rate was appreciating, high persistent and skewed negatively. The changes of log exchange rate behave as normal with an autoregressive conditional heteroscedasticity process for innovations. The characteristics of the exchange rate changes indicates the presence of heterogeneity among market participants as well as changing parameters over time. Standard deviation of this distribution dominates the mean value. variance was also time varying. The results of this study has important implications for exchange rate determination, balance of payments, risk modeling and management, forecasting, market efficiency, statistical inference in empirical work and for the economy, as whole.
The Distribution of Exchange Rate Volatility
New York University Leonard N Stern School Finance Department Working Paper Seires, 1999
Using high-frequency data on Deutschemark and Yen returns against the dollar, we construct model-free estimates of daily exchange rate volatility and correlation, covering an entire decade. In addition to being model-free, our estimates are also approximately free of measurement error under general conditions, which we delineate. Hence, for all practical purposes, we can treat the exchange rate volatilities and correlations as observed rather than latent. We do so, and we characterize their joint distribution, both unconditionally and conditionally. Noteworthy results include a simple normality-inducing volatility transformation, high contemporaneous correlation across volatilities, high correlation between correlation and volatilities, pronounced and highly persistent temporal variation in both volatilities and correlation, clear evidence of long-memory dynamics in both volatilities and correlation, and remarkably precise scaling laws under temporal aggregation.
An Examination of the Short-Term and Long-Term Behavior of Foreign Exchange Rates
The Financial Review, 1996
This study employs the heteroskedasticity-robust variance ratio test and the modified rescaled range analysis to examine the short-term and long-term behavior of foreign exchange rates. The empirical results suggest that four of the five weekly nominal exchange rates examined exhibit short-term dependence. Further, there is evidence of long-term dependence in the nominal exchange rate series. The results also indicate that the real exchange rates generally exhibit short-term independence, and the lack of strong evidence in favor of long-term dependence in real exchange rates indicates that the purchasing power parity may not hold in the long run.
International Journal of Scientific Research and Management
The economy of Botswana heavily relies on mineral exports (mainly diamond exports), which are largely dependent on the exchange rate. And, the US Dollar is one of the most important currencies in the basket of currencies to which the Botswana Pula is pegged. Therefore, this paper seeks to empirically establish the baseline characteristics of the Botswana Pula (BWP) and the US Dollar (USD) exchange rate and to identify the most plausible probability distribution from the skewed generalized t (SGT) family that can be used to model the log-returns of the daily BWP/USD exchange rates for the period January 2001 to December 2020. The SGT family is a highly versatile class of models that can capture the skewness and kleptokurticity that are inherent in financial time series. Four probability distributions are considered in this study: skewed t, skewed generalized error, generalized t and skewed generalized t. The maximum likelihood approach is used to estimate the parameters of each model...