Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian

Torben G. Andersen (), Tim Bollerslev (), Francis Diebold () and Paul Labys

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: It is well known that high-frequency asset returns are fat-tailed relative to the Gaussian distribution, and that the fat tails are typically reduced but not eliminated when returns are standardized by volatilities estimated from popular models such as GARCH. We consider two major dollar exchange rates, and we show that returns standardized instead by the realized volatilities of Andersen, Bollerslev, Diebold and Labys (1999) are very nearly Gaussian. We perform both univariate and multivariate analyses, we trace the different effects of the different standardizations to differences in information sets, and we draw implications for the presence of jumps in exchange rate diffusions.

Date: 1999-10-26
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Related works:
Working Paper: Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian (2000)
Working Paper: Exchange Rate Returns Standardized by Realized Volatility Are (Nearly) Gaussian (1999)
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