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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27125
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| Title: | The Distribution of Exchange Rate Volatility |
| Authors: | Andersen, Torben G.
Bollerslev, Tim
Diebold, Francis X.
Labys, Paul |
| Keywords: | Financial Market Volatility
High-Frequency Data
Realized Volatility
Quadratic Variation
Exchange Rates
Long-Memory |
| Issue Date: | 2-Nov-1999 |
| Series/Report no.: | FIN-99-059 |
| Abstract: | Using high-frequency data on Deutschemark and Yen returns against the
dollar, we construct model-free estimates of daily exchange rate
volatility and correlation, covering an entire decade. In addition to
being model-free, our estimates are also approximately free of
measurement error under general conditions, which we delineate. Hence,
for all practical purposes, we can treat the exchange rate volatilities
and correlations as observed rather than latent. We do so, and we
characterize their joint distribution, both unconditionally and
conditionally. Noteworthy results include a simple normality-inducing
volatility transformation, high contemporaneous correlation across
volatilities, high correlation between correlation and volatilities,
pronounced and highly persistent temporal variation in both volatilities
and correlation, clear evidence of long-memory dynamics in both
volatilities and correlation, and remarkably precise scaling laws under
temporal aggregation. |
| URI: | http://hdl.handle.net/2451/27125 |
| Appears in Collections: | Finance Working Papers
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