The Distribution of Extremal Foreign Exchange Rate Returns in Extremely Large Data Sets

Posted: 10 Oct 1998

See all articles by Michel M. Dacorogna

Michel M. Dacorogna

DEAR-Consulting

Ulrich A. Müller

Olsen & Associates

Olivier V. Pictet

Pictet Asset Management

Casper G. de Vries

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

This study is based on an exceptionally large and automatically filtered data set containing most of the quoted prices on Reuters over 7 years. We employ semi-parametric extremal analysis. A bias reduction is attained by bootstrapping on resamples. The empirical results demonstrate the existence of the unconditional second moment of the distribution but the non-convergence of the fourth moment. Studies of cross-rates among European Monetary System currencies show a smaller tail index indicating a higher probability on extreme returns relative to the scale. The theory is subsequently applied to calculating the probabilities on as yet unseen extreme returns. This provides information to the treasurers of currency desks.

JEL Classification: F31

Suggested Citation

Dacorogna, Michel M. and Müller, Ulrich A. and Pictet, Olivier V. and De Vries, Casper, The Distribution of Extremal Foreign Exchange Rate Returns in Extremely Large Data Sets. Available at SSRN: https://ssrn.com/abstract=6377

Michel M. Dacorogna (Contact Author)

DEAR-Consulting ( email )

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Ulrich A. Müller

Olsen & Associates ( email )

Seefeldstrasse 233
CH-8008 Zurich
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+41 (1) 422 22 82 (Fax)

Olivier V. Pictet

Pictet Asset Management ( email )

Geneva
Switzerland

Casper De Vries

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

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+31 10 408 9147 (Fax)

Tinbergen Institute

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Netherlands
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+31 10 408 9147 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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