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Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian
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Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian
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Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian
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Paper
Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian
2000
Overview
Working Paper No. 7488 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.
Publisher
National Bureau of Economic Research, Inc
Subject
