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An analysis of the efficiency of the foreign exchange market in Kenya

Author

Listed:
  • Sifunjo E. Kisaka

    (School of Business, University of Nairobi)

  • Wainaina Gituro

    (School of Business, University of Nairobi)

  • Pokhariyal Ganesh

    (School of Mathematics, University of Nairobi)

  • Ngugi W. Rose

    (School of Economics, University of Nairobi)

Abstract

This study examined the Efficiency Market hypothesis in its weak form using run tests, unit root tests and the Ljung-Box Q-statistics. The motivation was to determine whether foreign exchange rate returns follow a random walk. The data covered the period starting January 1994 to June 2007 for the daily closing spot price of the Kenya shillings per US dollar exchange rate. The main finding of this study is that the foreign exchange rate market is not efficient. The results showed that most of the rejections are due to significant patterns, trend stationarity and autocorrelation in foreign exchange returns. This is attributed to both exchange rate undershooting and overshooting phenomena.

Suggested Citation

  • Sifunjo E. Kisaka & Wainaina Gituro & Pokhariyal Ganesh & Ngugi W. Rose, 2008. "An analysis of the efficiency of the foreign exchange market in Kenya," Economics Bulletin, AccessEcon, vol. 14(2), pages 1-13.
  • Handle: RePEc:ebl:ecbull:eb-08n20003
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    File URL: http://www.accessecon.com/pubs/EB/2008/Volume14/EB-08N20003A.pdf
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    References listed on IDEAS

    as
    1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    2. repec:bla:jfinan:v:44:y:1989:i:1:p:167-81 is not listed on IDEAS
    3. 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.
    4. Abdullah M. Noman & Minhaz U. Ahmed, 2009. "Efficiency of the foreign exchange markets in South Asia," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 1(4), pages 295-305.
    5. Logue, Dennis E. & Sweeney, Richard James & Willett, Thomas D., 1978. "Speculative behavior of foreign exchange rates during the current float," Journal of Business Research, Elsevier, vol. 6(2), pages 159-174, May.
    6. Ian H Giddy & Gunter Dufey, 1975. "The Random Behavior of the Flexible Exchange Rates: Implications for Forecasting," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 6(1), pages 1-32, March.
    7. Fama, Eugene F, 1991. "Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
    8. Hsieh, David A., 1988. "The statistical properties of daily foreign exchange rates: 1974-1983," Journal of International Economics, Elsevier, vol. 24(1-2), pages 129-145, February.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. 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.
    2. Saint Kuttu & Joshua Yindenaba Abor & Godfred Amewu, 2024. "Long memory in volatility in foreign exchange markets: evidence from selected countries in Africa," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(2), pages 462-482, June.
    3. repec:pid:wpaper:2012:82 is not listed on IDEAS
    4. Ahmet Akca & Ethem Çanakoğlu, 2021. "Adaptive stochastic risk estimation of firm operating profit," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(3), pages 463-504, September.

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    More about this item

    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • G0 - Financial Economics - - General

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