Cotter, John (2004): Tail Behaviour of the Euro. Published in: Applied Economics , Vol. 37, (2005): pp. 1-14.
Download (212Kb) | Preview
This paper empirically analyses risk in the Euro relative to other currencies. Comparisons are made between a sub period encompassing the final transitional stage to full monetary union with a sub period prior to this. Stability in the face of speculative attack is examined using Extreme Value Theory to obtain estimates of tail exchange rate changes. The findings are encouraging. The Euro’s common risk measures do not deviate substantially from other currencies. Also, the Euro is stable in the face of speculative pressure. For example, the findings consistently show the Euro being less risky than the Yen, and having similar inherent risk to the Deutsche Mark, the currency that it is essentially replacing.
|Item Type:||MPRA Paper|
|Original Title:||Tail Behaviour of the Euro|
|Subjects:||F - International Economics > F3 - International Finance > F31 - Foreign Exchange|
|Depositing User:||John Cotter|
|Date Deposited:||13. Jun 2007|
|Last Modified:||14. Feb 2013 16:35|
Andersen, T.G., and T. Bollerslev, 1997. Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns, Journal of Finance, 52: 975-1005. Andersen, T.G., T. Bollerslev, F.X. Diebold and P. Labys, 1999. Exchange Rate Returns Standardized by Realized Volatility are (nearly) Gaussian, Wharton Financial Institutions Center, Working Paper 00-29. Baillie, R. T., and T. Bollerslev, 1990. A Multivariate Generalised GARCH Approach to Modelling Risk Premia in Foreign Exchange Rate Markets, Journal of International Money and Finance, 9: 309-324. Bakaert, G. and S. F. Gray, 1996. Target Zones and Exchange Rates: An Empirical Investigation, NBER Working Paper No. 5445. BIS (Bank for International Settlements), 2001. Central Bank Survey of Foreign Exchange and Derivative Market Activity in April 2001, Bank for International Settlements. Bollerslev, T., 1986. Generalised Autoregressive Conditional Heteroskedasticity, Journal of Econometrics, 31: 307-327. Bollerslev, T., and J. M. Wooldridge, 1992. Quasi-maximum Likelyhood Estimation and Inference in Models with Time Varying Covariances. Econometric Reviews, 11: 143-172. Caporale, G. M. and N. Pittis, 1996. Modelling the Sterling-Deutschmark Exchange Rate: Non-Linear Dependence and Thick Tails, Economic Modelling, 13: 1-14. Corsetti, G., P. Pesenti, and N. Roubini, 1998. What Caused the Asian Currency and Financial Crises, mimeo, New York University. 28 Danielsson, J and C. G. de Vries, 1997. Tail Index and Quantile Estimation with Very High Frequency Data, Journal of Empirical Finance, 4: 241-257. Dewachter, H., 1995. Divergence Indicators and the Volatility Smoothness in Semi- Fixed Exchange Rate Regimes, Weltwirtschaftliches Archiv, 131: 695-707. Diebold, F. X., 1988. Empirical Modelling of Exchange Rate Dynamics, Springer Verlag: New York. Dooley, M. P., 1998. Speculative Attacks on a Monetary Union, International Journal of Finance and Economics, 3: 21-27. Engle, R. F., and Y. Gau. Conditional Volatility of Exchange Rate Under a Target Zone, University of California San Diego, Economics Discussion Paper No. 97-06. Feller, W., 1971. An Introduction to Probability Theory and its Applications, John Wiley: New York. Fong, W. M., 1998. The Dynamics of DM/£ Exchange Rate Volatility: A SWARCH Analysis, International Journals of Finance and Economics, 3: 59-72. Ghose, D., and K. F. Kroner, 1995. The Relationship between GARCH and Symmetric Stable Processes: Finding the Source of Fat Tails in Financial Data, Journal of Empirical Finance, 2: 225-251. Hall, P. 1982. On some simple Estimates of an Exponent of Regular Variation, Journal of the Royal Statistical Society, Series B, 44: 37-42. Hill, B. M., 1975. A Simple General Approach to Inference about the Tail of a Distribution, Annals of Statistics, 3: 1163-1174. Hsieh, D. A., 1989, Modelling Heteroskedasticity in Daily Foreign Exchange Rates, Journal of Business and Economic Statistics, 7: 307-317. Kearns, P., and A. Pagan, 1997. Estimating the Density Tail Index for Financial Time Series, The Review of Economics and Statistics, 79: 171-175. 29 Koedijk, K. G., P. A. Stork and C. G. de Vries, 1992. Differences between Foreign Exchange Rate Regimes: The View from the Tails, Journal of International Money and Finance, 11: 462-473. Koedijk, K. G. and C. J. M. Kool, 1994. Tail Estimates and the EMS Target Zone, Review of International Economics, 2: 153-165. Leadbetter, M. R., G. Lindgren and H. Rootzen, 1983. Extremes and Related Properties of Random Sequences and Processes, Springer: New York. Loretan, M. and P. C. B. Phillips, 1994. Testing the Covariance Stationarity of Heavytailed Time Series, Journal of Empirical Finance, 1: 211-248. Mandelbrot, B., 1963, The Variation of certain Speculative Prices, Journal of Business, 36: 394-419. McCurdy, T. H., and I. Morgan, 1988. Testing the Martingale Hypothesis in Deutshce Mark Futures with Models specifying the form of the heteroskedasticity, Journal of Applied Econometrics, 3: 187-202. Mussa, M., 1979. Empirical Regularities in the Behaviour of Exchange Rates and Theories of the Foreign Exchange Market, (Eds. Brunner, K and Meltzer A. H.. eds), North Holland: Amsterdam. Neeley, C. J. 1999. Target Zones and Conditional Volatility: The Role of Realignments, Journal of Empirical Finance, 6: 177-192. Phillips, P. C. B. and S. Ouliaris, 1990. Asymptotic Properties of Residual Based Tests for Cointegration, Econometrica, 58: 165-193. Phillips, P. C. B., McFarland, J. W. and P. C. McMahon, 1996. Robust Tests of Forward Exchange Market Efficiency with Empirical Evidence from the 1920s, Journal of Applied Econometrics, 11: 1 - 22. 30 Portes, R. and H. Rey, 1998. The Emergence of the Euro as an International Vehicle Currency, Economic Policy, 26: 307-343. de Vries, C. G., 1994. Stylised Facts of Nominal Exchange Rate Returns, The Handbook of International Macroeconomics (Ed. F Van der Ploeg), Blackwell Publishers; Oxford.