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Modeling exchange rate dependence dynamics at different time horizons
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Dias, Alexandra and Embrechts, Paul (2010) Modeling exchange rate dependence dynamics at different time horizons. Journal of International Money and Finance, Vol.29 (No.8). pp. 1687-1705. doi:10.1016/j.jimonfin.2010.06.004 ISSN 02615606.
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Official URL: http://dx.doi.org/10.1016/j.jimonfin.2010.06.004
Abstract
Despite an extensive body of research, the best way to model the dependence of exchange rates remains an open question. In this paper we present a new approach which employs a flexible time-varying copula model. It allows the conditional correlation between exchange rates to be both time-varying and modeled independently from the marginal distributions. We introduce a dynamic specification for the correlation using the Fisher transformation. Applied to Euro/US dollar and Japanese Yen/US dollar, our results reveal a significantly time-varying correlation, dependent on the past return realizations. We find that a time-varying copula with the proposed correlation specification gives better results than alternative dynamic benchmark models. The dynamic copula model outperforms at six different time horizons, ranging from hourly to daily, confirming the model specification. (C) 2010 Elsevier Ltd. All rights reserved.
| Item Type: | Journal Article | ||||
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| Subjects: | H Social Sciences > HG Finance | ||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | Journal of International Money and Finance | ||||
| Publisher: | Elsevier BV | ||||
| ISSN: | 02615606 | ||||
| Official Date: | December 2010 | ||||
| Dates: |
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| Volume: | Vol.29 | ||||
| Number: | No.8 | ||||
| Number of Pages: | 19 | ||||
| Page Range: | pp. 1687-1705 | ||||
| DOI: | 10.1016/j.jimonfin.2010.06.004 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access |
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