IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v24y2010i3p284-294.html
   My bibliography  Save this article

Efficiency tests of foreign exchange markets for four Asian Countries

Author

Listed:
  • Chiang, Shu-Mei
  • Lee, Yen-Hsien
  • Su, Hsin-Mei
  • Tzou, Yi-Pin

Abstract

This paper uses the traditional variance ratio test of Lo and MacKinlay (1988, 1989), the non-parametric-based variance ratio test of Wright (2000) and the multiple-variance ratio test of Chow and Denning (1993), to re-examine the validity of the weak form efficient market hypothesis for foreign exchange markets in four floating-rate markets in neighboring Asian economies (Japan, South Korea, Taiwan and the Philippines). The results show that the random walk patterns of the exchange rate return series cannot be rejected, with the one exception of Taiwan, where inefficiency is shown to be most prominent. We therefore conclude that the foreign exchange markets of Japan, South Korea and the Philippines are weak form efficient, while the foreign exchange market of Taiwan is inefficient.

Suggested Citation

  • Chiang, Shu-Mei & Lee, Yen-Hsien & Su, Hsin-Mei & Tzou, Yi-Pin, 2010. "Efficiency tests of foreign exchange markets for four Asian Countries," Research in International Business and Finance, Elsevier, vol. 24(3), pages 284-294, September.
    • Handle: RePEc:eee:riibaf:v:24:y:2010:i:3:p:284-294
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275-5319(10)00002-4
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lo, Andrew W. & MacKinlay, A. Craig, 1989. "The size and power of the variance ratio test in finite samples : A Monte Carlo investigation," Journal of Econometrics, Elsevier, vol. 40(2), pages 203-238, February.
    2. Olivier Darné & Jean‐François Hoarau, 2007. "Further Evidence On Mean Reversion In The Australian Exchange Rate," Bulletin of Economic Research, Wiley Blackwell, vol. 59(4), pages 383-395, October.
    3. Jorge Belaire-Franch & Kwaku Opong, 2005. "A Variance Ratio Test of the Behaviour of Some FTSE Equity Indices Using Ranks and Signs," Review of Quantitative Finance and Accounting, Springer, vol. 24(1), pages 93-107, January.
    4. Kwong-C. Cheung & J. Andrew Coutts, 2001. "A note on weak form market efficiency in security prices: evidence from the Hong Kong stock exchange," Applied Economics Letters, Taylor & Francis Journals, vol. 8(6), pages 407-410.
    5. Patricia Alvarez‐Plata & Mechthild Schrooten, 2006. "The Argentinean Currency Crisis: A Markov‐Switching Model Estimation," The Developing Economies, Institute of Developing Economies, vol. 44(1), pages 79-91, March.
    6. Fama, Eugene F, 1991. "Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
    7. Nilss Olekalns & Nigel Wilkins, 1998. "Re‐examining the Evidence for Long‐Run Purchasing Power Parity," The Economic Record, The Economic Society of Australia, vol. 74(224), pages 54-61, March.
    8. Kearney, Colm & MacDonald, Ronald, 1991. "Efficiency in the Forward Foreign Exchange Market: Weekly Tests of the Australian/U.S. Dollar Exchange Rate January 1984-March 1987," The Economic Record, The Economic Society of Australia, vol. 67(198), pages 237-242, September.
    9. Liu, Christina Y & He, Jia, 1991. "A Variance-Ratio Test of Random Walks in Foreign Exchange Rates," Journal of Finance, American Finance Association, vol. 46(2), pages 773-785, June.
    10. Hoque, Hafiz A.A.B. & Kim, Jae H. & Pyun, Chong Soo, 2007. "A comparison of variance ratio tests of random walk: A case of Asian emerging stock markets," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 488-502.
    11. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    12. Sunil Poshakwale, 2002. "The Random Walk Hypothesis in the Emerging Indian Stock Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(9&10), pages 1275-1299.
    13. Henry, Olan T. & Olekalns, Nilss, 2002. "Does the Australian dollar real exchange rate display mean reversion," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 651-666, October.
    14. Azad, A.S.M. Sohel, 2009. "Random walk and efficiency tests in the Asia-Pacific foreign exchange markets: Evidence from the post-Asian currency crisis data," Research in International Business and Finance, Elsevier, vol. 23(3), pages 322-338, September.
    15. Chow, K. Victor & Denning, Karen C., 1993. "A simple multiple variance ratio test," Journal of Econometrics, Elsevier, vol. 58(3), pages 385-401, August.
    16. Oh, Gabjin & Kim, Seunghwan & Eom, Cheoljun, 2007. "Market efficiency in foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 209-212.
    17. Colm Kearney & Ronald Macdonald, 1991. "Efficiency in the Forward Foreign Exchange Market: Weekly Tests of the Australian/US Dollar Exchange Rate January 1984‐March 1987," The Economic Record, The Economic Society of Australia, vol. 67(3), pages 237-242, September.
    18. Wright, Jonathan H, 2000. "Alternative Variance-Ratio Tests Using Ranks and Signs," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 1-9, January.
    19. Ainul Islam & Mohammed Khaled, 2005. "Tests of Weak-Form Efficiency of the Dhaka Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1613-1624.
    20. Kun‐Ming CHEN & Hsiu‐Hua RAU & Chia‐Ching LIN, 2006. "The Impact Of Exchange Rate Movements On Foreign Direct Investment: Market‐Oriented Versus Cost‐Oriented," The Developing Economies, Institute of Developing Economies, vol. 44(3), pages 269-287, September.
    21. Darrat, Ali F & Zhong, Maosen, 2000. "On Testing the Random-Walk Hypothesis: A Model-Comparison Approach," The Financial Review, Eastern Finance Association, vol. 35(3), pages 105-124, August.
    22. Roland Füss, 2005. "Financial Liberalization and Stock Price Behaviour in Asian Emerging Markets," Economic Change and Restructuring, Springer, vol. 38(1), pages 37-62, March.
    23. Kan, Denis & Andreosso-O'Callaghan, B., 2007. "Examination of the efficient market hypothesis--the case of post-crisis Asia Pacific countries," Journal of Asian Economics, Elsevier, vol. 18(2), pages 294-313, April.
    24. Karfakis, C.I. & Parikh, A., 1991. "Exchange Rate Convergence and Market Efficiency," Working Papers 167, University of Sydney, School of Economics.
    25. Chun I. Lee & Ike Mathur, 1999. "Efficiency tests in the Spanish futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(1), pages 59-77, February.
    26. Eduardo Jose Araujo Lima & Benjamin Miranda Tabak, 2004. "Tests of the random walk hypothesis for equity markets: evidence from China, Hong Kong and Singapore," Applied Economics Letters, Taylor & Francis Journals, vol. 11(4), pages 255-258.
    27. Osamah M. Al‐Khazali & David K. Ding & Chong Soo Pyun, 2007. "A New Variance Ratio Test of Random Walk in Emerging Markets: A Revisit," The Financial Review, Eastern Finance Association, vol. 42(2), pages 303-317, May.
    28. Sunil Poshakwale, 2002. "The Random Walk Hypothesis in the Emerging Indian Stock Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(9‐10), pages 1275-1299.
    29. Kunimune, Kozo, 1999. "Exchange Rate Stabilization and IMF High Interest Rate Policy: A Critical Reconsideration Using a Dynamic Model," The Developing Economies, Institute of Developing Economies, Japan External Trade Organization(JETRO), vol. 37(3), pages 337-354, September.
    30. Jeon, Bang Nam & Seo, Byeongseon, 2003. "The impact of the Asian financial crisis on foreign exchange market efficiency: The case of East Asian countries," Pacific-Basin Finance Journal, Elsevier, vol. 11(4), pages 509-525, September.
    31. Mussa, Michael, 1979. "Empirical regularities in the behavior of exchange rates and theories of the foreign exchange market," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 11(1), pages 9-57, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yamani, Ehab, 2019. "Diversification role of currency momentum for carry trade: Evidence from financial crises," Journal of Multinational Financial Management, Elsevier, vol. 49(C), pages 1-19.
    2. Mobarek, Asma & Fiorante, Angelo, 2014. "The prospects of BRIC countries: Testing weak-form market efficiency," Research in International Business and Finance, Elsevier, vol. 30(C), pages 217-232.
    3. Charles, Amélie & Darné, Olivier & Kim, Jae H., 2012. "Exchange-rate return predictability and the adaptive markets hypothesis: Evidence from major foreign exchange rates," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1607-1626.
    4. Anoop S. KUMAR & Bandi KAMAIAH, 2016. "Efficiency, non-linearity and chaos: evidences from BRICS foreign exchange markets," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(606), S), pages 103-118, Spring.
    5. Asif, Raheel & Frömmel, Michael, 2022. "Testing Long memory in exchange rates and its implications for the adaptive market hypothesis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 593(C).
    6. Al-Hajieh, Heitham & Redhead, Keith & Rodgers, Timothy, 2011. "Investor sentiment and calendar anomaly effects: A case study of the impact of Ramadan on Islamic Middle Eastern markets," Research in International Business and Finance, Elsevier, vol. 25(3), pages 345-356, September.
    7. Vinodh Madhavan & Rakesh Arrawatia, 2016. "Relative Efficiency of G8 Sovereign Credit Default Swaps and Bond Scrips: An Adaptive Market Hypothesis Perspective," Studies in Microeconomics, , vol. 4(2), pages 127-150, December.
    8. Diniz-Maganini, Natalia & Rasheed, Abdul A. & Sheng, Hsia Hua, 2021. "Exchange rate regimes and price efficiency: Empirical examination of the impact of financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 73(C).
    9. Yamani, Ehab, 2021. "Foreign exchange market efficiency and the global financial crisis: Fundamental versus technical information," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 74-89.
    10. Yamani, Ehab, 2021. "Can technical trading beat the foreign exchange market in times of crisis?," Global Finance Journal, Elsevier, vol. 48(C).
    11. Diniz-Maganini, Natalia & Rasheed, Abdul A. & Sheng, Hsia Hua, 2023. "Price efficiency of the foreign exchange rates of BRICS countries: A comparative analysis," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(1).
    12. Anderloni, Luisa & Tanda, Alessandra, 2017. "Green energy companies: Stock performance and IPO returns," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 546-552.
    13. Azzam, Islam & El-Masry, Ahmed A. & Yamani, Ehab, 2023. "Foreign exchange market efficiency during COVID-19 pandemic," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 717-730.
    14. Sashikanta Khuntia & J. K. Pattanayak, 2020. "Evolving Efficiency of Exchange Rate Movement: An Evidence from Indian Foreign Exchange Market," Global Business Review, International Management Institute, vol. 21(4), pages 956-969, August.
    15. Jamaani, Fouad & Roca, Eduardo, 2015. "Are the regional Gulf stock markets weak-form efficient as single stock markets and as a regional stock market?," Research in International Business and Finance, Elsevier, vol. 33(C), pages 221-246.
    16. Adeyeye Patrick Olufemi & Aluko Olufemi Adewale & Migiro Stephen Oseko, 2017. "Efficiency of Foreign Exchange Markets in Sub-Saharan Africa in the Presence of Structural Break: A Linear and Non-Linear Testing Approach," Journal of Economics and Behavioral Studies, AMH International, vol. 9(4), pages 122-131.
    17. Al-Khazali, Osamah M. & Pyun, Chong Soo & Kim, Daewon, 2012. "Are exchange rate movements predictable in Asia-Pacific markets? Evidence of random walk and martingale difference processes," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 221-231.
    18. Yang, Yan-Hong & Shao, Ying-Hui & Shao, Hao-Lin & Stanley, H. Eugene, 2019. "Revisiting the weak-form efficiency of the EUR/CHF exchange rate market: Evidence from episodes of different Swiss franc regimes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 523(C), pages 734-746.
    19. Katusiime, Lorna & Shamsuddin, Abul & Agbola, Frank W., 2015. "Foreign exchange market efficiency and profitability of trading rules: Evidence from a developing country," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 315-332.
    20. Azad, A.S.M. Sohel & Azmat, Saad & Fang, Victor & Edirisuriya, Piyadasa, 2014. "Unchecked manipulations, price–volume relationship and market efficiency: Evidence from emerging markets," Research in International Business and Finance, Elsevier, vol. 30(C), pages 51-71.
    21. Bernard Njindan Iyke, 2019. "A Test Of The Efficiency Of The Foreign Exchange Market In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 0(12th BMEB), pages 1-26, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bley, Jorg, 2011. "Are GCC stock markets predictable?," Emerging Markets Review, Elsevier, vol. 12(3), pages 217-237, September.
    2. Hung, Jui-Cheng, 2009. "Deregulation and liberalization of the Chinese stock market and the improvement of market efficiency," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 843-857, August.
    3. Yang, Yan-Hong & Shao, Ying-Hui & Shao, Hao-Lin & Stanley, H. Eugene, 2019. "Revisiting the weak-form efficiency of the EUR/CHF exchange rate market: Evidence from episodes of different Swiss franc regimes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 523(C), pages 734-746.
    4. Yen-Hsien Lee, 2010. "The Impact Of Deregulation On Stock Market Efficiency," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(2), pages 165-176.
    5. Charles, Amélie & Darné, Olivier, 2009. "The random walk hypothesis for Chinese stock markets: Evidence from variance ratio tests," Economic Systems, Elsevier, vol. 33(2), pages 117-126, June.
    6. Amelie Charles & Olivier Darne, 2009. "Testing for Random Walk Behavior in Euro Exchange Rates," Economie Internationale, CEPII research center, issue 119, pages 25-45.
    7. Abullah M. Noman & Minhaz U. Ahmed, 2008. "Efficiency of the foreign exchange markets in South Asian Countries," AIUB Bus Econ Working Paper Series AIUB-BUS-ECON-2008-18, American International University-Bangladesh (AIUB), Office of Research and Publications (ORP), revised Jun 2008.
    8. Amélie Charles & Olivier Darné, 2009. "Variance‐Ratio Tests Of Random Walk: An Overview," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 503-527, July.
    9. Charles, Amélie & Darné, Olivier & Kim, Jae H., 2012. "Exchange-rate return predictability and the adaptive markets hypothesis: Evidence from major foreign exchange rates," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1607-1626.
    10. Mamdouh Abdulaziz Saleh Al-Faryan & Everton Dockery, 2021. "Testing for efficiency in the Saudi stock market: does corporate governance change matter?," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 61-90, July.
    11. Rahman, Md. Lutfur & Lee, Doowon & Shamsuddin, Abul, 2017. "Time-varying return predictability in South Asian equity markets," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 179-200.
    12. Madhavi Latha Challa & Venkataramanaiah Malepati & Siva Nageswara Rao Kolusu, 2020. "S&P BSE Sensex and S&P BSE IT return forecasting using ARIMA," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-19, December.
    13. Siva Kiran & Prabhakar Rao.R, 2019. "Analysis of Stock Market Efficiency in Emerging Markets: Evidence from BRICS," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 22(72), pages 60-77, June.
    14. Francesco Guidi & Rakesh Gupta, 2011. "Are ASEAN stock market efficient? Evidence from univariate and multivariate variance ratio tests," Discussion Papers in Finance finance:201113, Griffith University, Department of Accounting, Finance and Economics.
    15. Aye, Goodness C. & Gil-Alana, Luis A. & Gupta, Rangan & Wohar, Mark E., 2017. "The efficiency of the art market: Evidence from variance ratio tests, linear and nonlinear fractional integration approaches," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 283-294.
    16. Charles, Amélie & Darné, Olivier, 2009. "The efficiency of the crude oil markets: Evidence from variance ratio tests," Energy Policy, Elsevier, vol. 37(11), pages 4267-4272, November.
    17. Kim, Jae H. & Shamsuddin, Abul, 2008. "Are Asian stock markets efficient? Evidence from new multiple variance ratio tests," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 518-532, June.
    18. Jui-Cheng Hung & Yen-Hsien Lee & Tung-Yueh Pai, 2009. "Examining market efficiency for large- and small-capitalization of TOPIX and FTSE stock indices," Applied Financial Economics, Taylor & Francis Journals, vol. 19(9), pages 735-744.
    19. Boya, Christophe M., 2019. "From efficient markets to adaptive markets: Evidence from the French stock exchange," Research in International Business and Finance, Elsevier, vol. 49(C), pages 156-165.
    20. 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.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:24:y:2010:i:3:p:284-294. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.