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Martingale difference hypothesis and financial crisis: Empirical evidence from European emerging foreign exchange markets

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  • Lazăr, Dorina
  • Todea, Alexandru
  • Filip, Diana

Abstract

This study investigates the effects of the recent global crisis on the relative efficiency of six CEE currency markets, using the generalized spectral test of Escanciano and Velasco (2006) in a rolling window approach. The empirical results show that the global crisis adversely affected the efficiency of most CEE currency markets, with the Turkish lira being hit the hardest, followed by the Russian ruble, Czech koruna, Romanian leu, Polish zloty and Hungarian forint. In the first stage of the crisis, covering the second half of 2008 and the first months of 2009, all foreign exchange markets experienced periods of inefficiency. In the second stage of the crisis, the Hungarian, Polish and Romanian foreign markets recovered market efficiency quickly, while Russia, Turkey and the Czech Republic continue to register a low degree of efficiency.

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  • Lazăr, Dorina & Todea, Alexandru & Filip, Diana, 2012. "Martingale difference hypothesis and financial crisis: Empirical evidence from European emerging foreign exchange markets," Economic Systems, Elsevier, vol. 36(3), pages 338-350.
    • Handle: RePEc:eee:ecosys:v:36:y:2012:i:3:p:338-350
    DOI: 10.1016/j.ecosys.2012.02.002
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    5. Oktay Ozkan, 2020. "Time-varying return predictability and adaptive markets hypothesis: Evidence on MIST countries from a novel wild bootstrap likelihood ratio approach," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 34(2), pages 101-113.
    6. Garcia, M.M. & Machado Pereira, A.C. & Acebal, J.L. & Bosco de Magalhães, A.R., 2020. "Forecast model for financial time series: An approach based on harmonic oscillators," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 549(C).
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    9. 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.
    10. Todea, Alexandru & Pleşoianu, Anita, 2013. "The influence of foreign portfolio investment on informational efficiency: Empirical evidence from Central and Eastern European stock markets," Economic Modelling, Elsevier, vol. 33(C), pages 34-41.
    11. Katusiime, Lorna & Shamsuddin, Abul & Agbola, Frank W., 2015. "Foreign exchange market efficiency and profitability of trading rules: Evidence from a developing country," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 315-332.
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    More about this item

    Keywords

    Emerging foreign exchange markets; Global crisis; Relative efficiency; Martingale;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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