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Tail events in the FX markets since 1740.
- Source :
- Journal of Risk Finance (Emerald Group Publishing Limited); 2014, Vol. 15 Issue 3, p294-311, 18p
- Publication Year :
- 2014
-
Abstract
- Purpose – The purpose of this paper is to explore the extent of the so-called “small-sample problem” within quantitative exchange-rate risk management. Design/methodology/approach – The authors take a closer look at the frequency distribution of nominal price changes in the European foreign exchange markets. Findings – The analysis clearly illustrates the risk of seriously underestimating the probability and magnitude of tail events when frequency distributions are derived from fairly short data samples. Practical implications – The authors suggest that financial institutions and regulators should have an eye for the long-term historical perspective when designing sensitivity tests or “worst case” scenarios in relation to risk assessments and stress tests. Originality/value – The authors add to the literature by analysing the distribution of nominal exchange-rate fluctuations on the basis of a unique quarterly data set for ten European exchange-rate pairs covering a time span of 273 years constructed by the authors. To the best of the authors' knowledge this is the first study on nominal exchange-rate changes for a large number of exchange-rate pairs based on quarterly data spanning almost three centuries. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 15265943
- Volume :
- 15
- Issue :
- 3
- Database :
- Complementary Index
- Journal :
- Journal of Risk Finance (Emerald Group Publishing Limited)
- Publication Type :
- Academic Journal
- Accession number :
- 99128899
- Full Text :
- https://doi.org/10.1108/JRF-04-2014-0041