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Tail Behaviour of the Euro

  • John Cotter

    (University College Dublin)

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
File Function: First version, 2004
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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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  1. Torben G. Andersen & Tim Bollerslev, 1996. "Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns," NBER Working Papers 5752, National Bureau of Economic Research, Inc.
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  3. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January.
  4. Koedijk, Kees G & Kool, Clemens J M, 1994. "Tail Estimates and the EMS Target Zone," Review of International Economics, Wiley Blackwell, vol. 2(2), pages 153-65, June.
  5. Peter C.B. Phillips & James W. McFarland & Patrick C. McMahon, 1994. "Robust Tests of Forward Exchange Market Efficiency with Empirical Evidence from the 1920's," Cowles Foundation Discussion Papers 1080, Cowles Foundation for Research in Economics, Yale University.
  6. Loretan, Mico & Phillips, Peter C. B., 1994. "Testing the covariance stationarity of heavy-tailed time series: An overview of the theory with applications to several financial datasets," Journal of Empirical Finance, Elsevier, vol. 1(2), pages 211-248, January.
  7. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2000. "Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian," NBER Working Papers 7488, National Bureau of Economic Research, Inc.
  8. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis?," Temi di discussione (Economic working papers) 343, Bank of Italy, Economic Research and International Relations Area.
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  10. Richard Portes & Hélène Rey, 1998. "The emergence of the euro as an international currency," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 305-343, 04.
  11. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
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  14. Fong, Wai Mun, 1998. "The Dynamics of DM/L Exchange Rate Volatility: A SWARCH Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(1), pages 59-71, January.
  15. repec:ner:tilbur:urn:nbn:nl:ui:12-3108712 is not listed on IDEAS
  16. Caporale, Guglielmo Maria & Pittis, Nikitas, 1996. "Modelling the sterling-deutschmark exchange rate: Non-linear dependence and thick tails," Economic Modelling, Elsevier, vol. 13(1), pages 1-14, January.
  17. McCurdy, Thomas H & Morgan, Ieuan G, 1988. "Testing the Martingale Hypothesis in Deutsche Mark Futures with Models Specifying the Form of Heteroscedasticity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(3), pages 187-202, July-Sept.
  18. Koedijk, Kees G. & Stork, Philip A. & de Vries, Casper G., 1992. "Differences between foreign exchange rate regimes: The view from the tails," Journal of International Money and Finance, Elsevier, vol. 11(5), pages 462-473, October.
  19. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  20. Dooley, Michael, 1998. "Speculative Attacks on a Monetary Union?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(1), pages 21-26, January.
  21. Ghose, Devajyoti & Kroner, Kenneth F., 1995. "The relationship between GARCH and symmetric stable processes: Finding the source of fat tails in financial data," Journal of Empirical Finance, Elsevier, vol. 2(3), pages 225-251, September.
  22. Geert Bekaert & Stephen F. Gray, 1999. "Target Zones and Exchange Rates: An Empirical Investigation," NBER Working Papers 5445, National Bureau of Economic Research, Inc.
  23. Phillip Kearns & Adrian Pagan, 1997. "Estimating The Density Tail Index For Financial Time Series," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 171-175, May.
  24. Baillie, Richard T. & Bollerslev, Tim, 1990. "A multivariate generalized ARCH approach to modeling risk premia in forward foreign exchange rate markets," Journal of International Money and Finance, Elsevier, vol. 9(3), pages 309-324, September.
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