Time Series Modelling of Daily Log-Price Ranges for Sf/Usd and Usd/Gbp

35 Pages Posted: 23 Jul 2002

See all articles by Celso Brunetti

Celso Brunetti

Board of Governors of the Federal Reserve System

Peter M. Lildholdt

Bank of England - Monetary Analysis

Date Written: June 29, 2002

Abstract

The aim of this paper is to model the dynamic evolution of daily log-price ranges for two foreign exchange rates, SF/USD and USD/GBP. Following Chou (2001),we adopt the CARR model, which is identical to the ACD model of Engle & Russell (1998). Log-price ranges are highly efficient measures of daily volatilities and hence our empirical results provide insights into the volatility dynamics for SF/USD and USD/GBP. We find that both series are highly persistent, and in particular, USD/GBP calls for a long memory specification in the form of a fractionally integrated CARR model. Semi-parametric and parametric models are estimated, and the parametric (fractionally integrated) CARR with a Gamma distribution is the preferred model. However, the estimation results of the simple semi-parametric procedure (QMLE) are virtually identical to the results of the preferred parametric models.

Keywords: Daily Price Range, Foreign Exchange Rate Volatility, Persistency, CARR, FICARR

JEL Classification: C22, G15

Suggested Citation

Brunetti, Celso and Lildholdt, Peter M., Time Series Modelling of Daily Log-Price Ranges for Sf/Usd and Usd/Gbp (June 29, 2002). Available at SSRN: https://ssrn.com/abstract=319302 or http://dx.doi.org/10.2139/ssrn.319302

Celso Brunetti (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Peter M. Lildholdt

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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