A re-examination of the fragility of evidence from cointegration-based tests of foreign exchange market efficiency
AbstractWe re-examine Sephton and Larsen's (1991) conclusion that cointegration-based tests for market efficiency suffer from temporal instability. We improve upon their research by i) including a drift term in the vector error correction model (VECM) in the Johansen procedure, ii) correcting the likelihood ratio test statistic for finite-sample bias, and iii) fitting the model over longer data sets. We show that instability of the Johansen cointegration tests mostly disappears after accounting for these two factors. The evidence is even more stable in favour of no cointegration when we apply our analysis to longer data sets
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Financial Economics.
Volume (Year): 7 (1997)
Issue (Month): 6 ()
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Web page: http://www.tandf.co.uk/journals/routledge/09603107.html
Other versions of this item:
- John Barkoulas & Christopher F. Baum, 1996. "A Re-examination of the Fragility of Evidence from Cointegration- Based Tests of Foreign Exchange Market Efficiency," Boston College Working Papers in Economics 311., Boston College Department of Economics.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- F31 - International Economics - - International Finance - - - Foreign Exchange
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