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Comparative analysis of the multifractality and efficiency of exchange markets: Evidence from exchange rates dynamics of major world currencies

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  • Han, Chenyu
  • Wang, Yiming
  • Ning, Ye

Abstract

This paper studies the exchange rates of four major currencies against the United States dollar(USD), including the euro(EUR), the pound(GBP), the Canadian dollar(CAD), and the Japanese yen(JPY) from 2005 to 2019 through multifractal detrended fluctuation analysis (MF-DFA). The four exchange rate series exhibit significant multifractal properties on the whole time scale and the yen has the lowest multifractal properties among the four exchange rate series, showing the highest market efficiency. The multifractal properties of the four exchange rate series are due to both long-range correlation and fat-tail characteristics of non-Gaussian probability density function. The cross-correlations among different exchange markets reflect the internal linkages between different exchange markets. This paper also aims to compare the multifractality degrees of euro, pound, Canadian dollar, and yen exchange markets in three sub-samples divided by the 2008 financial crisis and the Federal Reserve’s announcement of its withdrawal from quantitative easing(QE) policy in 2014, finding that the four exchange markets all have multifractal structural properties with different levels in the sample and sub-samples that cause inefficiency with different levels in these foreign exchange markets. This may help study the impacts of these events on efficiency and risks in these exchange markets in each sub-sample from the statistical and fractal perspectives. This study has theoretical and practical significance in the application of Effective Market Hypothesis (EMH) in exchange market. Results of this study may also provide important implications for further study on the dynamic mechanism and efficiency in exchange market and help investors effectively control the market risks.

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  • Han, Chenyu & Wang, Yiming & Ning, Ye, 2019. "Comparative analysis of the multifractality and efficiency of exchange markets: Evidence from exchange rates dynamics of major world currencies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 535(C).
    • Handle: RePEc:eee:phsmap:v:535:y:2019:i:c:s0378437119313627
    DOI: 10.1016/j.physa.2019.122365
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    More about this item

    Keywords

    MF-DFA; Multifractal properties; Exchange market; Market efficiency; Exchange rates;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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