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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Bibliographic Details
Published inJournal of international money and finance Vol. 25; no. 7; pp. 1187 - 1205
Main Authors Candelon, Bertrand, Straetmans, Stefan
Format Journal Article
LanguageEnglish
Published Kidlington Elsevier Ltd 01.11.2006
Elsevier
Elsevier Science Ltd
SeriesJournal of International Money and Finance
Subjects
Capital returns
Currency market
Exchange rate policy
Exchange rate regimes
Extreme value analysis
Foreign exchange
Foreign exchange rates
International finance
Significance tests
Statistical methods
Structural breaks
Studies
Tail index
Time series
Value analysis
Structural breaks
Extreme value analysis
F31
C49
G15
Tail index
Exchange rate regimes
G19
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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.
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