Origins of the scaling behaviour in the dynamics of financial data

The conditionally exponential decay (CED) model is used to explain the scaling laws observed in financial data. This approach enables us to identify the distributions of currency exchange rate or economic indices returns (changes) corresponding to the empirical scaling laws. This is illustrated for daily returns of the Dow Jones industrial average (DJIA) and the Standard & Poorʹs 500 (S&P500) indices as well as for high-frequency returns of the USD/DEM exchange rate.