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Efficiency in BRICS Currency Markets Using Long-Spans of Data: Evidence from Model-Free Tests of Directional Predictability

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  • Rangan Gupta
  • Vasilios Plakandaras

Abstract

We analyze the directional predictability in foreign exchange markets of Brazil, Russia, India, China and South Africa (BRICS) using the quantilogram, based on long-spans of monthly historical data, at times covering over a century. We find that the efficient market hypothesis (EMH) holds at the extreme phases of the currency markets (and around the median for India and South Africa). Since predictability holds at certain parts of the unconditional distribution of exchange rate returns, we find support for the Adaptive Market Hypothesis (AMH). AMH, based on the idea of bounded rationality, suggests that currency return predictability will be intermittent, due to changing market conditions and institutional factors.

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  • Rangan Gupta & Vasilios Plakandaras, 2019. "Efficiency in BRICS Currency Markets Using Long-Spans of Data: Evidence from Model-Free Tests of Directional Predictability," Journal of Economics and Behavioral Studies, AMH International, vol. 11(1), pages 152-165.
    • Handle: RePEc:rnd:arjebs:v:11:y:2019:i:1:p:152-165
    DOI: 10.22610/jebs.v11i1(J).2756
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    1. Mehmet Balcilar & Rangan Gupta & Clement Kyei & Mark E. Wohar, 2016. "Does Economic Policy Uncertainty Predict Exchange Rate Returns and Volatility? Evidence from a Nonparametric Causality-in-Quantiles Test," Open Economies Review, Springer, vol. 27(2), pages 229-250, April.
    2. Charfeddine, Lanouar & Khediri, Karim Ben & Aye, Goodness C. & Gupta, Rangan, 2018. "Time-varying efficiency of developed and emerging bond markets: Evidence from long-spans of historical data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 632-647.
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    12. Vasilios Plakandaras & Rangan Gupta & Luis A. Gil-Alana & Mark E. Wohar, 2019. "Are BRICS exchange rates chaotic?," Applied Economics Letters, Taylor & Francis Journals, vol. 26(13), pages 1104-1110, July.
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    Cited by:

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    2. Lin Liu, 2022. "Economic Uncertainty and Exchange Market Pressure: Evidence From China," SAGE Open, , vol. 12(1), pages 21582440211, January.

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    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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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