Evaluating Currency Risk in Emerging Markets |
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Authors: | S Y Novak V Dalla L Giraitis |
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Institution: | (1) Middlesex University, London, UK;(2) Royal Holloway, University of London, Egham, UK;(3) Department of Economics, Queen Mary, University of London, Mile End Road, London, E1 4NS, UK |
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Abstract: | We present a systematic approach to the problem of evaluating currency risk. The approach involves a test for stationarity,
and a method of estimating Value-at-Risk (VaR) and Expected Shortfall (ES) from dependent heavy-tailed data. Various estimation
methods are compared and the accuracy of the approach is discussed. An application of the technique to the Mexican peso/US
dollar exchange rate reveals the level of currency risk foreign investors face in Mexico.
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Keywords: | Currency risk Emerging markets Value-at-Risk Heavy-tailed data |
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