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Scaling in currency exchange: A Conditionally Exponential Decay approach

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Author Info

  • Szymon Mercik
  • Rafal Weron

Abstract

We use the Conditionally Exponential Decay (CED) model to explain the scaling behavior in currency exchange (FX) rates. This approach enables us not only to show that FX returns satisfy scaling with an exponent qualitatively different from that of a random walk, but also to identify the distributions of these returns corresponding to the empirical scaling laws. The study is conducted via three different estimation methods and using intra-daily FX data which offers the great advantage of large samples and high significance.

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File URL: http://www.im.pwr.wroc.pl/~hugo/RePEc/wuu/wpaper/HSC_98_02.pdf
File Function: Final version, 1998
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Bibliographic Info

Paper provided by Hugo Steinhaus Center, Wroclaw University of Technology in its series HSC Research Reports with number HSC/98/02.

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Length: 15 pages
Date of creation: 1998
Date of revision:
Publication status: Published in Physica A 267 (1999) 239-250.
Handle: RePEc:wuu:wpaper:hsc9802

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Related research

Keywords: Econophysics; Scaling law; CED model; High frequency data; Currency exchange;

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References

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  1. Aleksander Janicki & Aleksander Weron, 1994. "Simulation and Chaotic Behavior of Alpha-stable Stochastic Processes," HSC Books, Hugo Steinhaus Center, Wroclaw University of Technology, number hsbook9401.
  2. John List & Matti Liski, 2005. "Introduction," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(2), pages 121-121, 06.
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Cited by:
  1. Mercik, Szymon & Weron, Rafal, 2002. "Origins of scaling in FX markets," MPRA Paper 2294, University Library of Munich, Germany.

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