Testing for multiple regimes in the tail behavior of emerging currency returns
It is by now generally accepted that foreign exchange returns exhibit “heavy tails” as measured by the so-called tail index. However, it is unclear whether the tail behavior remains stationary in the presence of recurrent switches in the exchange rate regime. We therefore test the null hypothesis of...
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Published in | Journal of international money and finance Vol. 25; no. 7; pp. 1187 - 1205 |
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Main Authors | , |
Format | Journal Article |
Language | English |
Published |
Kidlington
Elsevier Ltd
01.11.2006
Elsevier Elsevier Science Ltd |
Series | Journal of International Money and Finance |
Subjects | |
Online Access | Get full text |
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Summary: | It is by now generally accepted that foreign exchange returns exhibit “heavy tails” as measured by the so-called tail index. However, it is unclear whether the tail behavior remains stationary in the presence of recurrent switches in the exchange rate regime. We therefore test the null hypothesis of tail index constancy by applying a single breaks test “in rounds” which enables the detection of multiple breakpoints. We are able to identify multiple jumps in the tail index of currency returns. Moreover, some breaks coincide with documented shifts in monetary and exchange rate policies. |
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Bibliography: | ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0261-5606 1873-0639 |
DOI: | 10.1016/j.jimonfin.2006.08.008 |