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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/27125

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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