Scaling in currency exchange: A Conditionally Exponential Decay approach

We use the Conditionally Exponential Decay (CED) model to explain the scaling behavior in currency exchange (FX) rates. This approach enables us not only to show that FX returns satisfy scaling with an exponent qualitatively different from that of a random walk, but also to identify the distributions of these returns corresponding to the empirical scaling laws. The study is conducted via three different estimation methods and using intra-daily FX data which offers the great advantage of large samples and high significance.