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Distribution and Dynamics of Central-European Exchange Rates: Evidence from Intraday Data

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Abstract

This paper investigates the behavior of the EUR/CZK, EUR/HUF and EUR/PLN spot exchange rates in the period 2002–2008, using 5-minute intraday data. The authors find that daily returns on the corresponding exchange rates scaled by model-free estimates of daily realized volatility are approximately normally distributed and independent over time. On the other hand, daily realized variances exhibit substantial positive skewness and very persistent, long-memory type of dynamics. The authors estimate a simple three-equation model for daily returns, realized variance and the time-varying volatility of realized variance. The model captures all salient features of the data very well and can be successfully employed for constructing point, as well as density forecasts for future volatility. The authors also discuss some issues associated with measuring volatility from the noisy high-frequency data and employ a simple correction that accounts for the distortions present in our dataset.

Suggested Citation

  • Vít Bubák & Filip Žikeš, 2009. "Distribution and Dynamics of Central-European Exchange Rates: Evidence from Intraday Data," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(4), pages 334-359, Oktober.
  • Handle: RePEc:fau:fauart:v:59:y:2009:i:4:p:334-359
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    Cited by:

    1. Todorova, Neda, 2015. "The course of realized volatility in the LME non-ferrous metal market," Economic Modelling, Elsevier, vol. 51(C), pages 1-12.
    2. Neda Todorova & Michael Soucek & Eduardo Roca, 2015. "Volatility spillovers from international commodity markets to the Australian equity market," Discussion Papers in Finance finance:201505, Griffith University, Department of Accounting, Finance and Economics.
    3. Souček, Michael & Todorova, Neda, 2013. "Realized volatility transmission between crude oil and equity futures markets: A multivariate HAR approach," Energy Economics, Elsevier, vol. 40(C), pages 586-597.
    4. Bubák, Vít & Kocenda, Evzen & Zikes, Filip, 2011. "Volatility transmission in emerging European foreign exchange markets," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2829-2841, November.
    5. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    6. Tomáš Tichý, 2010. "Posouzení odhadu měnového rizika portfolia pomocí Lévyho modelů
      [Examination of Portfolio Currency Risk Estimation by Means of Lévy Models]
      ," Politická ekonomie, University of Economics, Prague, vol. 2010(4), pages 504-521.

    More about this item

    Keywords

    intraday data; realized variance; return and volatility distributions; heterogeneous autoregressive model;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets

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