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Efficiency Of Foreign Exchange Markets: A Developing Country Perspective

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Author Info
Guneratne Banda Wickremasinghe (Monash University)

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Abstract

This study tests weak and semi-strong form efficiency of the foreign exchange market in Sri Lanka using six bilateral foreign exchange rates during the recent float. Weak-form efficiency is examined using unit root tests while semi-strong form efficiency is tested using co- integration and Granger causality tests and variance decomposition analysis. Results indicate that the Sri Lankan foreign exchange market is consistent with the weak -form of the Efficient Market Hypothesis. However, the results provide evidence against the semi - strong version of the Efficient Market hypothesis. These results have important implications for government policy makers and participants in the foreign exchange market of Sri Lanka.

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Publisher Info
Paper provided by EconWPA in its series International Finance with number 0406004.

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Length: 24 pages
Date of creation: 16 Jun 2004
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Handle: RePEc:wpa:wuwpif:0406004

Note: Type of Document - pdf; pages: 24
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Related research
Keywords: Efficient market hypothesis; Sri Lanka; foreign exchange market; Japanese yen; Variance decomposition;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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References listed on IDEAS
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.:
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  4. Mark P. Taylor & Ronald MacDonald, 1991. "Exchange Rate Economics: A Survey," IMF Working Papers 91/62, International Monetary Fund.
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  6. Craig S. Hakkio & Mark Rush, 1987. "Market efficiency and cointegration," Research Working Paper 87-05, Federal Reserve Bank of Kansas City.
  7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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  15. 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 773-85, June. [Downloadable!] (restricted)
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  17. Serletis, Apostolos & King, Martin, 1997. "Common Stochastic Trends and Convergence of European Union Stock Markets," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 65(1), pages 44-57, January.
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  19. Sarwar, Ghulam, 1997. "Efficiency of black markets in foreign currencies in Southeast Asia," Journal of Multinational Financial Management, Elsevier, vol. 7(4), pages 333-344, December. [Downloadable!] (restricted)
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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.)

  1. Nikolaos Giannellis & Athanasios Papadopoulos, 2006. "Testing for Efficiency in Selected Developing Foreign Exchange Markets: An Equilibrium-based Approach," Working Papers 0717, University of Crete, Department of Economics. [Downloadable!]
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