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

23 Pages Posted: 10 Mar 2000 Last revised: 10 Apr 2001

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 )

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Tim Bollerslev

Duke University - Finance ( email )

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Francis X. Diebold

University of Pennsylvania - Department of Economics ( email )

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

National Bureau of Economic Research (NBER)

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Paul Labys

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