Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian
It is well known that high-frequency asset returns are fat-tailed relative to the Gaussian distribution tails are typically reduced but not eliminated when returns are standardized by volatilities estimated from popular models such as GARCH. We consider two major dollar exchange rates, and we show that returns standardized instead by the realized volatilities of Andersen, Bollerslev, Diebold and Labys (1999) are very nearly Gaussian. We perform both univariate and multivariate analyses, we trace the different effects of the different standardizations to differences in information sets, and we draw implications for the presence of jumps in exchange rate diffusions.
|Date of creation:||Jan 2000|
|Date of revision:|
|Publication status:||published as Andersen, Torben G., Tim Bollerslev, Francis X. Diebold and Paul Labys. "The Distribution Of Realized Exchange Rate Volatility," Journal of the American Statistical Association, 2001, v96(453,Mar), 42-55.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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