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The Probability Distribution of Foreign Exchange Price Changes: Tests of Candidate Processes

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  • Tucker, Alan L
  • Pond, Lallon

Abstract

This study investigates empirically candidate processes for characterizing foreign exchange price changes measured over limited horizons. Extant empirical studies find distributions of exchange returns too long-tailed and leptokurtic to satisfy normality. Four processes are investigated here because of their potential to model o bserved discontinuities in exchange rates and nonstationary sample moments, as well as their economic appeal. The results favor a mixed-jump model for all six major trading currencies tested. Copyright 1988 by MIT Press.

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  • Tucker, Alan L & Pond, Lallon, 1988. "The Probability Distribution of Foreign Exchange Price Changes: Tests of Candidate Processes," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 638-647, November.
    • Handle: RePEc:tpr:restat:v:70:y:1988:i:4:p:638-47
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