Exchange Rate Volatility and the Mixture of Distribution Hypothesis

Posted: 22 Feb 2006

See all articles by Luc Bauwens

Luc Bauwens

Université catholique de Louvain

Dagfinn Rime

BI Norwegian Business School

Genaro Sucarrat

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

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Abstract

This paper sheds new light on the mixture of distribution hypothesis by means of a study of the exchange rate volatility of the Norwegian krone. First, we find that the impact of changes in the number of information events on exchange rate volatility is statistically significant, and recursive parameter analysis suggests the impact is relatively stable across three different exchange rate regimes. Second, our results do not support the hypothesis that an increase in the number of traders reduces exchange rate volatility. Finally, we report a case in which undesirable residual properties attained within traditional frameworks are easily removed by applying the log-transformation on volatilities.

Keywords: Exchange rate volatility, log-linear analysis, mixture of distribution hypothesis

JEL Classification: F31

Suggested Citation

Bauwens, Luc and Rime, Dagfinn and Sucarrat, Genaro, Exchange Rate Volatility and the Mixture of Distribution Hypothesis. Empirical Economics, Vol. 30, No. 4, pp. 889-911, 2005, Available at SSRN: https://ssrn.com/abstract=884249

Luc Bauwens (Contact Author)

Université catholique de Louvain ( email )

CORE
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
32 10 474321 (Phone)
32 10 474301 (Fax)

Dagfinn Rime

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway
+47-46410507 (Phone)

HOME PAGE: http://home.bi.no/dagfinn.rime/

Genaro Sucarrat

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

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