Abstract

The main objective of this study is to determine the best fitting distribution to describe the annual series of maximum daily exchange rate from 1993 to 2013 for 4 countries in Southeast Asia based on L-moment and Maximum Likelihood (ML). Four three-parameter extreme-value distributions which are considered are Generalized Extreme Value (GEV), Generalized Logistic Distribution (GLD), Generalized Pareto Distribution (GPD) and Pearson III (P3). The estimation of parameters of these distributions is determined using the L-moment and maximum likelihood. The adequacy of the distributions based on parameter estimates computed using the two methods are evaluated using goodness-of-fit tests. When the goodness-of-fit results for these distributions are compared, it is found that, on the average, the performance of L-moment is better than the performance of maximum likelihood. Although the best fitting distribution may very according to the method of estimation and country considered, in most cases, data for the majority of the several countries are found to follow the generalized logistic distribution.

Keywords:

Annual maximum series, exchange rate, extreme exchange rate analysis, L-moment, maximum likelihood,

References

1. Gettinby, G.D., C.D. Sinclair, D.M. Power and R.A. Brown, 2006. An analysis of the distribution of extremes in indices of share returns in the US, UK and Japan from 1963 to 2000. Int. J. Financ. Econ., 11(2): 97-113.
   
2. Hosking, J.R.M., 1990. L-moments: Analysis and estimation of distributions using linear combinations of order statistics. J. Roy. Stat. Soc. B Met., 52(1): 105-124.
   
3. Hosking, J.R.M. and J.R. Wallis, 1997. Regional Frequency Analysis: An Approach Based on L-moments. Cambridge University Press, Cambridge, UK.
   CrossRef    
4. Meese, R.A. and K. Rogoff, 1983. Empirical exchange rate models of the seventies: Do they fit out of sample? J. Int. Econ., 14(1-2): 3-24.
   CrossRef    Direct Link
5. Mussa, M., 1979. Empirical regularities in the behavior of exchange rates and theories of the foreign exchange market. Carn. Roch. Conf. Serie., 11(1): 9-57.
   
6. Vogel, R.M. and N.M. Fennessey, 1993. L moment diagrams should replace product moment diagrams. Water Resour. Res., 29(6): 1745-1752.
   CrossRef    Direct Link
7. Zawiah, W.Z.W., A.A. Jemain, K. Ibrahim, J. Suhaila and M.D. Sayang, 2009. A comparative study of extreme rainfall in Peninsular Malaysia: with reference to partial duration and annual extreme series. Sains Malays., 38(5): 751-760.
   Direct Link

Competing interests

The authors have no competing interests.

Open Access Policy

This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

Copyright

The authors have no competing interests.