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The Probability Distribution of Foreign Exchange Price Changes: Tests of Candidate Processes

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Author Info
Tucker, Alan L
Pond, Lallon
Abstract

This study investigates empirically candidate processes for characterizing foreign exchange price changes measured over limited horizons. Extant empirical studies find distributions of exchange returns too long-tailed and leptokurtic to satisfy normality. Four processes are investigated here because of their potential to model o bserved discontinuities in exchange rates and nonstationary sample moments, as well as their economic appeal. The results favor a mixed-jump model for all six major trading currencies tested. Copyright 1988 by MIT Press.

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Publisher Info
Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 70 (1988)
Issue (Month): 4 (November)
Pages: 638-47
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Handle: RePEc:tpr:restat:v:70:y:1988:i:4:p:638-47

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  1. Mercik, Szymon & Weron, Rafal, 2002. "Origins of scaling in FX markets," MPRA Paper 2294, University Library of Munich, Germany. [Downloadable!]
  2. Bernard Dumas & L. Peter Jennergren & Bertil Naslund, 1993. "Realignment Risk and Currency Option Pricing in Target Zones," NBER Working Papers 4458, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Charles Engel & Craig S. Hakkio, 1996. "The Distribution of Exchange Rates in the EMS," NBER Working Papers 4834, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Jeroen V.K. Rombouts & Lars Stentoft, 2009. "Bayesian Option Pricing Using Mixed Normal Heteroskedasticity Models," CREATES Research Papers 2009-07, School of Economics and Management, University of Aarhus. [Downloadable!]
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  5. Jeroen V.K. Rombouts & Lars Stentoft, 2009. "Bayesian Option Pricing Using Mixed Normal Heteroskedasticity," Cahiers de recherche 0926, CIRPEE. [Downloadable!]
  6. C. L. Osler, 2002. "Stop-loss orders and price cascades in currency markets," Staff Reports 150, Federal Reserve Bank of New York. [Downloadable!]
  7. Simon van Norden, 1995. "Regime Switching as a Test for Exchange Rate Bubbles," Econometrics 9502001, EconWPA, revised 09 Aug 1995. [Downloadable!]
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  8. Marian Micu, 2005. "Extracting expectations from currency option prices: a comparison of methods," Computing in Economics and Finance 2005 226, Society for Computational Economics. [Downloadable!]
  9. Mohammed Bouaddi & Jeroen V.K. Rombouts, 2007. "Mixed Exponential Power Asymmetric Conditional Heteroskedasticity," Cahiers de recherche 0749, CIRPEE. [Downloadable!]
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