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Title: Modeling exchange rate dependence dynamics at different time horizons
Authors: Dias, Alexandra
Embrechts, P.
First Published: 22-Jun-2010
Publisher: Elsevier
Citation: Journal Of International Money And Finance, 2010, 29 (8), pp. 1687-1705
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.
DOI Link: 10.1016/j.jimonfin.2010.06.004
ISSN: 0261-5606
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Copyright © 2010, Elsevier. The file associated with this record is distributed under the Creative Commons “Attribution Non-Commercial No Derivatives” licence, further details of which can be found via the following link:
Appears in Collections:Published Articles, School of Management

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