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Tail Behaviour of the Euro

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  • John Cotter

    (University College Dublin)

Abstract

This paper empirically analyses risk in the Euro relative to other currencies. Comparisons are made between a sub period encompassing the final transitional stage to full monetary union with a sub period prior to this. Stability in the face of speculative attack is examined using Extreme Value Theory to obtain estimates of tail exchange rate changes. The findings are encouraging. The Euro’s common risk measures do not deviate substantially from other currencies. Also, the Euro is stable in the face of speculative pressure. For example, the findings consistently show the Euro being less risky than the Yen, and having similar inherent risk to the Deutsche Mark, the currency that it is essentially replacing.

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File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200417.pdf
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Bibliographic Info

Paper provided by Geary Institute, University College Dublin in its series Working Papers with number 200417.

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Length: 44 pages
Date of creation: 07 2011
Date of revision:
Handle: RePEc:ucd:wpaper:200417

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Keywords: Extreme Value Theory; Tail Behaviour; GARCH; The Euro;

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References

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  1. Bekaert, G.R.J. & Gray, S.F., 1997. "Target zones and exchange rates: An empirical investigation," Discussion Paper 1997-22, Tilburg University, Center for Economic Research.
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Citations

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Cited by:
  1. Wan, Jer-Yuh & Kao, Chung-Wei, 2008. "The euro and pound volatility dynamics: An investigation from conditional jump process," Research in International Business and Finance, Elsevier, vol. 22(2), pages 193-207, June.
  2. Cotter, John & Dowd, Kevin, 2007. "The tail risks of FX return distributions: a comparison of the returns associated with limit orders and market orders," MPRA Paper 3493, University Library of Munich, Germany.
  3. Cotter, John, 2006. "Modelling catastrophic risk in international equity markets: An extreme value approach," MPRA Paper 3507, University Library of Munich, Germany.
  4. John Cotter, 2006. "Extreme Value Estimation of Boom and Crash Statistics," The European Journal of Finance, Taylor & Francis Journals, vol. 12(6-7), pages 553-566.
  5. Cotter, John, 2004. "Modelling extreme financial returns of global equity markets," MPRA Paper 3532, University Library of Munich, Germany.
  6. Ana-Maria Gavril, 2009. "Exchange Rate Risk: Heads or Tails," Advances in Economic and Financial Research - DOFIN Working Paper Series 35, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
  7. John Cotter, 2005. "Extreme risk in futures contracts," Applied Economics Letters, Taylor & Francis Journals, vol. 12(8), pages 489-492.
  8. john cotter & kevin dowd, 2011. "Intra-Day Seasonality in Foreign Exchange Market Transactions," Papers 1103.5664, arXiv.org.

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