Origins of scaling in FX markets
AbstractTypical data sets employed by economists and financial analysts do not exceed a few hundred or thousand observations per series. However, in the last decade data sets containing tick-by-tick observations have become available. The studies of these data have turned up new and interesting facts about the pricing of assets. In this article we show that foreign exchange (FX) rate returns satisfy scaling with an exponent significantly different from that of a random walk. But what is more important, we also show that the conditionally exponential decay (CED) model can be used to solve a long standing problem in the analysis of intra-daily data, i.e. it can be used to identify the mathematical structure of the distributions of FX returns corresponding to the empirical scaling laws.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2294.
Date of creation: Jul 2002
Date of revision:
FX market; scaling law; volatility; CED model; high frequency data;
Find related papers by JEL classification:
- C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
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