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Exchange rate volatility and the mixture of distribution hypothesis

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Bauwens, Luc [UCL] Rime, Dagfinn [] Sucarrat, Genaro [UCL]

This study sheds new light on the mixture of distribution hypothesis by means of a study of the weekly exchange rate volatility of the Norwegian krone. In line with other studies we find that the impact of information arrival on exchange rate volatility is positive and statistically significant, and that the hypothesis that an increase in the number of traders reduces exchange rate volatility is not supported. The novelties of our study consist in documenting that the positive impact of information arrival on volatility is relatively stable across three different exchange rate regimes, and in that the impact is relatively similar for both weekly volatility and weekly realised volatility. It is not given that the former should be the case since exchange rate stabilisation was actively pursued by the central bank in parts of the study period. We also report a case in which undesirable residual properties attained within traditional frameworks are easily removed by applying the log-transformation on volatilities.

Document type Article de périodique (Journal article)
Publication date 2006
Language Anglais
Journal information "Empirical Economics : a quarterly journal of the Institute for Advanced Studies, Vienna" - Vol. 30, no. 4, p. 889-911 (Janvier 2006)
Peer reviewed yes
Publisher Physica-Verlag GmbH und Co. (Heidelberg, Germany)
issn 0377-7332
e-issn 1435-8921
Publication status Publié
Affiliations UCL - EUEN/CORE - Center for operations research and econometrics
UCL - EUEN/CORE - Center for operations research and econometrics
Keywords Exchange rate volatility ; Mixture of distribution hypothesis
Links
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Bibliographic reference Bauwens, Luc ; Rime, Dagfinn ; Sucarrat, Genaro. Exchange rate volatility and the mixture of distribution hypothesis. In: Empirical Economics : a quarterly journal of the Institute for Advanced Studies, Vienna, Vol. 30, no. 4, p. 889-911 (Janvier 2006)
Permanent URL http://hdl.handle.net/2078.1/23084