Testing the Random Walk Hypothesis for Real Exchange Rates

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Testing the Random Walk Hypothesis for Real Exchange Rates

Author Info

Choi, In

Abstract

This paper tests the random walk hypothesis for the log-differenced monthly US real exchange rates versus some major currencies. The tests we use are variance ratio test, Durlauf's (1991) spectral domain tests and Andrews and Ploberger's (1996) optimal tests. The variance ratio test is calculated by using Andrews' (1991) optimal data-dependent methods. Finite sample properties of these tests are also reported. Because the results of applying these tests to the real exchange rates are occasionally inconsistent, tests to synthesize these test results are proposed and applied to the real exchange rates. These tests have often been used in meta-analysis, but have not previously been used to synthesize different test results. Simulation results for these tests are also reported. For the real exchange rate data from the post-Bretton Woods period, these tests reject the null only for the Swiss franc. But when longer-horizon data are used, there is more evidence of serial correlations in the log-differenced real exchange rates.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 14 (1999)
Issue (Month): 3 (May-June)
Pages: 293-308
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Handle: RePEc:jae:japmet:v:14:y:1999:i:3:p:293-308

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References listed on IDEAS
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Other versions:
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Other versions:
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Other versions:
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Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Benjamin Miranda Tabak & Eduardo José Araújo Lima, 2002. "The Effects of the Brazilian ADRs Program on Domestic Market Efficiency," Working Papers Series 43, Central Bank of Brazil, Research Department. [Downloadable!]
Benjamin Miranda Tabak, 2002. "The Random Walk Hypothesis and the Behavior of Foreign Capital Portfolio Flows: the Brazilian Stock Market Case," Working Papers Series 58, Central Bank of Brazil, Research Department. [Downloadable!]
Other versions:
- Benjamin Miranda Tabak, 2003. "The random walk hypothesis and the behaviour of foreign capital portfolio flows: the Brazilian stock market case," Applied Financial Economics, Taylor and Francis Journals, vol. 13(5), pages 369-378, January. [Downloadable!] (restricted)

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