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Exchange Rate Volatility and the Mixture of Distribution Hypothesis

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Author Info
Luc, BAUWENS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)
Dagfinn, RIME
Genaro, SUCARRAT

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Abstract

This paper sheds new light on the mixture of distribution hypothesis by means of a study of the weekly exchange rate volatility of the Norwegian krone. In line with other studies we find that the impact of information arrival on exchange rate volatility is positive and statiscally significant, and that the hypothesis that an increase in the number of traders reduces exchange rate volatility is not supported. The novelties of our study consist in documenting that the positive impact of information arrival on volatillity is relatively stable across three different exchange rate regimes, and in that the impact is relatively similar for both weekly volatility and weekly realised volatility. It is not given that the former should be the case since exchange rate stabilisation was actively pursued by the central bank in parts of the study period; We also report a case in which undesirable residual properties attained within traditional frameworks are easily removed by applying the log-transformation on volatilities.

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Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2005043.

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Length: 33
Date of creation: 15 Jul 2005
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Handle: RePEc:ctl:louvec:2005043

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Related research
Keywords: Exchange rate volatility; log-linear analysis; mixture of distribution hypothesis;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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  6. Melvin, Michael & Yin, Xixi, 2000. "Public Information Arrival, Exchange Rate Volatility, and Quote Frequency," Economic Journal, Royal Economic Society, vol. 110(465), pages 644-61, July. [Downloadable!] (restricted)
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  7. Bauwens, Luc & Ben Omrane, Walid & Giot, Pierre, 2005. "News announcements, market activity and volatility in the euro/dollar foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1108-1125, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luc Bauwens & Genaro Sucarrat, 2008. "General to specific modelling of exchange rate volatility : a forecast evaluation," Economics Working Papers we081810, Universidad Carlos III, Departamento de Economía. [Downloadable!]
    Other versions:
  2. Dagfinn Rime & Genaro Sucarrat, 2007. "Exchange rate variability, market activity and heterogeneity," Economics Working Papers we077039, Universidad Carlos III, Departamento de Economía. [Downloadable!]
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