TAIL ESTIMATES OF EAST EUROPEAN EXCHANGE-RATES

In the literature, a consensus exists that distributions of exchange-rate returns are fat tailed. We use a nonparametric tail-index estimator based on extreme-value theory to shed light on some of the characteristics ot the empirical distribution of black-market exchange-rate returns for seven East European currencies between 1955 and 1990, focusing on the information in the tails of the distribution. We modify an existing tail-index estimator to take into account information in both tails. The results support the existence of finite second moments in exchange-rate returns. Implicitly, the sum-stable distribution is rejected.