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Testing for Random Walk Behavior in Euro Exchange Rates

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  • Amelie Charles
  • Olivier Darne

Abstract

This study examines the random walk behavior of major Euro exchange rates. The hypothesis is tested with new variance ratio tests based on power transformation and multiple ranks from daily and weekly data. We find that Euro exchange rates for the major trading countries follow the random walk hypothesis, and therefore are significantly weak-form efficient. This outcome is not necessarily the case for non-major trading currencies, especially for the Swedish kroner, where the random walk hypothesis is rejected at the daily and weekly frequencies.

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Bibliographic Info

Article provided by CEPII research center in its journal Economie Internationale.

Volume (Year): (2009)
Issue (Month): 119 ()
Pages: 25-45

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Handle: RePEc:cii:cepiei:2009-3tb

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Keywords: Exchange market efficiency; euro exchange rates; random walk; variance ratio test;

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References

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Cited by:
  1. Lazăr, Dorina & Todea, Alexandru & Filip, Diana, 2012. "Martingale difference hypothesis and financial crisis: Empirical evidence from European emerging foreign exchange markets," Economic Systems, Elsevier, vol. 36(3), pages 338-350.
  2. Amélie Charles & Olivier Darné & Jae H. Kim, 2010. "Exchange-Rate Return Predictability and the Adaptive Markets Hypothesis: Evidence from Major Foreign Exchange Rates," Working Papers hal-00547722, HAL.
  3. Fahad Almudhaf, 2014. "Testing for random walk behaviour in CIVETS exchange rates," Applied Economics Letters, Taylor & Francis Journals, vol. 21(1), pages 60-63, January.

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