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The Distribution of Foreign Exchange Price Changes: Trading Day Effects and Risk Measurement

James W. McFarland, R. Richardson Pettit and Sam K. Sung
The Journal of Finance
Vol. 37, No. 3 (Jun., 1982), pp. 693-715
Published by: Wiley for the American Finance Association
DOI: 10.2307/2327703
Stable URL: http://www.jstor.org/stable/2327703
Page Count: 23
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Distribution of Foreign Exchange Price Changes: Trading Day Effects and Risk Measurement
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Abstract

This study investigates the nature of price changes in a variety of major and minor foreign exchange markets. The results suggest that the log of price changes over one (trading) day intervals seems to follow a non-normal stable distribution function. Different measures of location (and to lesser extent scale) are present for different days of the week. Dollar denominated price changes are high on Mondays and Wednesdays and low on Thursdays and Fridays for all currencies. The Wednesday-Thursday result is consistent with the settlement procedures used in foreign exchange transactions in the dollar. The Friday-Monday result is consistent with an increase in demand for the dollar prior to the weekend.

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