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

23 Pages Posted: 10 Mar 2000 Last revised: 19 Jun 2022

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: January 2000

Abstract

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.

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 (January 2000). NBER Working Paper No. w7488, Available at SSRN: https://ssrn.com/abstract=210889

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
158
Abstract Views
2,526
Rank
278,639
PlumX Metrics