South African Foreign Exchange Risk under Managed Floating: Distributional Aspects

Abstract

The paper examines exchange rate risk, defined as the variability in weekly log-ratios of the Rand-Dollar exchange rate during the decade of managed floating. Distributional tests lead to the rejection of the Gaussian model often used to evaluate exchange rate risk. Estimation shows that the leptokurtic character of the empirical distributions is better characterised by the class of non-normal stable Paretian distributions.