Exchange rate returns and volatility : the role of time-varying rare disaster risks

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Authors

Gupta, Rangan
Suleman, Tahir
Wohar, Mark E.

Journal Title

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Volume Title

Publisher

Routledge

Abstract

This paper provides empirical evidence to the theoretical claim that rare disaster risks have predictability for exchange rate returns and volatility using a nonparametric quantile-based methodology. Using dollar-based exchange rates for Brazil, Russia, India, China, and South Africa, the quantile-causality test shows that indeed rare disaster-risks affects both returns and volatility over the majority of their respective conditional distributions. In addition, these effects are much stronger when compared to those using the British pound, especially in terms of currency returns.

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Keywords

Exchange rate, Returns and volatility, Nonparametric quantile causality, Rare disasters

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Citation

Rangan Gupta, Tahir Suleman & Mark E. Wohar (2018): Exchange rate returns and volatility: the role of time-varying rare disaster risks, The European Journal of Finance, 25:2,190-203, DOI: 10.1080/1351847X.2018.1534750.