Statistically evaluates the "best" estimator of volatility for transaction data from foreign exchange (FOREX) futures contracts. The best model is chosen from a number of simple dynamic models for the mean and variance of the price/returns process of the transactions, i.e. trade-by-trade data. We analyzed transaction data for the following FOREX futures contracts: (1) Canadian dollar/US dollar; (2) Deutschemark/US dollar; (3) Japanese Yen/US dollar; (4) Mexican Peso/US dollar; (5) Pound Sterling/US dollar; and (6) Swiss Franc/US dollar. There is a special emphasis on the first year of trading for the Mexican Peso futures contracts which was from April 1995 to April 1996 and this interest defined the time period for the investigation.
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