The Probability Distribution of Foreign Exchange Price Changes: Tests of Candidate Processes

Alan L Tucker and Lallon Pond

The Review of Economics and Statistics, 1988, vol. 70, issue 4, 638-47

Abstract: This study investigates empirically candidate processes for characterizing foreign exchange price changes measured over limited horizons. Extant empirical studies find distributions of exchange returns too long-tailed and leptokurtic to satisfy normality. Four processes are investigated here because of their potential to model o bserved discontinuities in exchange rates and nonstationary sample moments, as well as their economic appeal. The results favor a mixed-jump model for all six major trading currencies tested. Copyright 1988 by MIT Press.

Date: 1988
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