Publication Type
Journal Article
Version
acceptedVersion
Publication Date
2-2007
Abstract
This paper models large swings in exchange rates by introducing nonlinearity via the generalized normal (GEN) distribution [Lye, J.N., Martin, V.L., 1993. Robust estimation, nonnormalities and generalized exponential distributions. Journal of the American Statistical Association 88, 261-267]. As the distribution allows for bimodality, a switch between modes may give rise to currency crashes. A statistic known as Cardan's discriminant, based on the shape parameters of the GEN, is used to detect bimodality. The Cardan's discriminant is found to reliably predict currency crashes for eight emerging countries and generate relatively low false signals for stable currencies.
Keywords
Cardan's discriminant, Currency crashes, Emerging markets, Generalized normal model, Multimodality
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Journal of International Money and Finance
Volume
26
Issue
1
First Page
131
Last Page
148
ISSN
0261-5606
Identifier
10.1016/j.jimonfin.2006.08.001
Publisher
Elsevier
Citation
KOH, Benedict Seng Kee; FONG, Wai Mun; and CHAN, Fabrice.
A Cardan’s Discriminant Approach to Predicting Currency Crashes. (2007). Journal of International Money and Finance. 26, (1), 131-148.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/1094
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jimonfin.2006.08.001