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Nonparametric testing of the high-frequency efficiency of the 1997 Asian foreign exchange markets

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  • Los, Cornelis A.

Abstract

For the first time, non-parametric statistical tests, originally developed by Sherry (1992) to test the efficiency of information processing in nervous systems, are used to ascertain if the Asian FX rates followed random walks. The stationarity and serial independence of the price changes are tested on minute-by-minute data for nine currencies for the period from January 1, 1997 to December 30, 1997. Tested were the Thai baht, Indonesian rupiah, Malaysian ringgit, Philippines' peso, Singapore dollar, Taiwan dollar and the Hong Kong dollar, with the Japanese Yen and German Deutschmark as benchmarks (The U.S. Dollar is the base currency). The efficiency of these FX markets before and after the onset of the Asian currency turmoil (i.e., January 1 - June 30, 1997 and July 1 - December 30, 1997) are compared. The Thai baht, Malaysian ringgit, Indonesian rupiah and Singapore dollar exhibited non-stationary behavior during the entire year, and gave evidence of a trading regime break, while the Phillipines' peso, Taiwan dollar, Yen and Deutschmark remained stationary (The Hong Kong dollar was pegged). However, each half-year regime showed stationarity by itself, indicating stable and nonchaotic trading regimes for all currencies, despite the high volatilities, except the Malaysian ringgit, which exhibited non-stationarity in the second half of 1997. The Thai baht traded nonstationarily in the first half of 1997, but stationarily in the second half, while the Taiwan dollar reversed that trading pattern. Regarding Sherry's four serial independence tests of differential spectrum, relative price changes, temporal trading windows of at least 20 minutes long and price change category transitions: none of the currencies exhibited complete independence. Thus no Asian currency market - including the Yen - exhibited complete efficiency in 1997 regarding both stationarity and independence, in particular when compared with the highly efficient Deutschmark. But, remarkably, the Phillipp
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  • Los, Cornelis A., 1999. "Nonparametric testing of the high-frequency efficiency of the 1997 Asian foreign exchange markets," Journal of Multinational Financial Management, Elsevier, vol. 9(3-4), pages 265-289, November.
    • Handle: RePEc:eee:mulfin:v:9:y:1999:i:3-4:p:265-289
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    2. Kyaw, NyoNyo A. & Los, Cornelis A. & Zong, Sijing, 2006. "Persistence characteristics of Latin American financial markets," Journal of Multinational Financial Management, Elsevier, vol. 16(3), pages 269-290, July.
    3. Sensoy, Ahmet & Tabak, Benjamin M., 2016. "Dynamic efficiency of stock markets and exchange rates," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 353-371.
    4. Guneratne B Wickremasinghe & Jae H Kim, 2008. "Weak-Form Efficiency of Foreign Exchange Markets of Developing Economies," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 7(2), pages 169-196, August.
    5. Karuppiah, Jeyanthi & Los, Cornelis A., 2005. "Wavelet multiresolution analysis of high-frequency Asian FX rates, Summer 1997," International Review of Financial Analysis, Elsevier, vol. 14(2), pages 211-246.
    6. Shahzad, Syed Jawad Hussain & Hernandez, Jose Areola & Hanif, Waqas & Kayani, Ghulam Mujtaba, 2018. "Intraday return inefficiency and long memory in the volatilities of forex markets and the role of trading volume," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 506(C), pages 433-450.
    7. Choi, Sun-Yong, 2021. "Analysis of stock market efficiency during crisis periods in the US stock market: Differences between the global financial crisis and COVID-19 pandemic," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 574(C).
    8. Azad, A.S.M. Sohel, 2009. "Random walk and efficiency tests in the Asia-Pacific foreign exchange markets: Evidence from the post-Asian currency crisis data," Research in International Business and Finance, Elsevier, vol. 23(3), pages 322-338, September.

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    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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