The distribution of realized exchange rate volatility

Published

Journal Article

Using high-frequency data on deutschemark and yen returns against the dollar, we construct model-free estimates of daily exchange rate volatility and correlation that cover an entire decade. Our estimates, termed realized volatilities and correlations, are not only model-free, but also approximately free of measurement error under general conditions, which we discuss in detail. Hence, for practical purposes, we may treat the exchange rate volatilities and correlations as observed rather than latent. We do so, and we characterize their joint distribution, both unconditionally and conditionally. Noteworthy results include a simple normality-inducing volatility transformation, high contemporaneous correlation across volatilities, high correlation between correlation and volatilities, pronounced and persistent dynamics in volatilities and correlations, evidence of long-memory dynamics in volatilities and correlations, and remarkably precise scaling laws under temporal aggregation. © 2001 American Statistical Association.

Full Text

Duke Authors

Cited Authors

  • Andersen, TG; Bollerslev, T; Diebold, FX; Labys, P

Published Date

  • March 1, 2001

Published In

Volume / Issue

  • 96 / 453

Start / End Page

  • 42 - 55

Electronic International Standard Serial Number (EISSN)

  • 1537-274X

International Standard Serial Number (ISSN)

  • 0162-1459

Digital Object Identifier (DOI)

  • 10.1198/016214501750332965

Citation Source

  • Scopus