Testing for Multiple Regimes in the Tail Behavior of Emerging Currency Returns

B. Candelon, S.T.M. Straetmans*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


It is by now generally accepted that foreign exchange returns exhibit “heavy tails” as measured by the so-called tail index. However, it is unclear whether the tail behavior remains stationary in the presence of recurrent switches in the exchange rate regime. We therefore test the null hypothesis of tail index constancy by applying a single breaks test “in rounds” which enables the detection of multiple breakpoints. We are able to identify multiple jumps in the tail index of currency returns. Moreover, some breaks coincide with documented shifts in monetary and exchange rate policies.
Original languageEnglish
Pages (from-to)1187-1205
Number of pages18
JournalJournal of International Money and Finance
Publication statusPublished - 1 Jan 2006

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