Metadatas
December, 2015
- ISIDORE Id: 10670/1.effeb3...
- hal: hal-01457402
- doi: 10.1016/j.jbankfin.2015.09.014
HALSHS : archive ouverte en Sciences de l’Homme et de la Société - notices sans texte intégral
This document is linked to :
info:eu-repo/semantics/altIdentifier/doi/10.1016/j.jbankfin.2015.09.014
Similar subjects
Fixed exchange rates Exchange rates Fluctuating exchange rates Flexible exchange rates Rates of exchange Foreign exchange--Rates Floating exchange rates Kinetics Pattern Model Periodicity Natural cycles Cyclic theoryCite this document
Deniz Erdemlioglu et al., « Which continuous-time model is most appropriate for exchange rates? », HALSHS : archive ouverte en Sciences de l’Homme et de la Société - notices sans texte intégral, ID : 10.1016/j.jbankfin.2015.09.014
Metrics
Share / Export
Abstract
This paper evaluates the most appropriate ways to model diffusion and jump features of high-frequency exchange rates in the presence of intraday periodicity in volatility. We show that periodic volatility distorts the size and power of conventional tests of Brownian motion, jumps and (in)finite activity. We propose a correction for periodicity that restores the properties of the test statistics. Empirically, the most plausible model for 1-min exchange rate data features Brownian motion and both finite activity and infinite activity jumps. Test rejection rates vary over time, however, indicating time variation in the data generating process. We discuss the implications of results for market microstructure and currency option pricing.
