Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian

21 Pages Posted: 8 Jul 2015

See all articles by Torben G. Andersen

Torben G. Andersen

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Aarhus University - CREATES

Tim Bollerslev

Duke University - Finance; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Francis X. Diebold

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Paul Labys

Charles River Associates (CRA) - Utah Office

Multiple version iconThere are 2 versions of this paper

Date Written: July 7, 2015

Abstract

It is well known that high-frequency asset returns are fat-tailed relative to the Gaussian distribution, and that the fat tails are typically reduced but not eliminated when returns are standardized by volatilities estimated from popular ARCH and stochastic volatility models. We consider two major dollar exchange rates, and we show that returns standardized instead by the realized volatilities of Andersen, Bollerslev, Diebold and Labys (2000a) are very nearly Gaussian. We perform both univariate and multivariate analyses, and we trace the differing effects of the different standardizations to differences in information sets.

Keywords: high-frequency data; integrated volatility; realized volatility; risk management

JEL Classification: C10, C22, C32, G15, G12

Suggested Citation

Andersen, Torben G. and Bollerslev, Tim and Diebold, Francis X. and Labys, Paul, Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian (July 7, 2015). Multinational Finance Journal, Vol. 4, No. 3/4, p. 159-179, 2000, Available at SSRN: https://ssrn.com/abstract=2627652

Torben G. Andersen (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Tim Bollerslev

Duke University - Finance ( email )

Durham, NC 27708-0120
United States
919-660-1846 (Phone)
919-684-8974 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Francis X. Diebold

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-1507 (Phone)
215-573-4217 (Fax)

HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paul Labys

Charles River Associates (CRA) - Utah Office ( email )

170 South Main St., Suite 500
Salt Lake City, UT 84101
United States
801.536.1511 (Phone)
801.536.1501 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
39
Abstract Views
882
PlumX Metrics