There is considerable interest as to whether exchange races behave like martingales. Liu and He (1991) test the martingale hypothesis for exchange rates using the variance ratio methodology of Lo and MacKinlay (1988). They find that exchange rates have violated martingale property since the inception of floating rates in 1973. However, Liu and He did not consider the joint implications of their tests, In this paper, we reassess the martingale hypothesis for exchange rates using the joint tests developed by Hochberg (1974) and Richardson and Smith (1991). Contrary to the findings of Liu He, the joint tests indicate that the martingale model worked quite well for exchange rates in the recent years of the floating rate regime.
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Volume (Year): 15 (1997) Issue (Month): 1 (January) Pages: 51-59 Download reference. The following formats are available: HTML
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