An investigation of Forex market efficiency based on detrended fluctuation analysis: A case study for Iran
The efficient market hypothesis (EMH) states that asset prices fully reflect all available information. As a result, speculators cannot predict the future behavior of asset prices and earn excess profits at least after adjusting for risk. Although initial tests of the EMH were performed on stock market data, the EMH was soon applied to other markets including foreign exchange (FX). This study uses the detrended fluctuation analysis (DFA) technique to test 01:12:2005–18:04:2010 Iranian Rial/US Dollar exchange rate time series data to see if it can be explained by the weak form of the EMH. Moreover, to determine changes in the degree of inefficiency over time, the whole period has been divided into four subperiods. The study shows that the Iranian Forex market (the Rial/Dollar case) is weak-form inefficient over the whole period and in each of the subperiods. However, the degree of inefficiency is not constant over time. The findings suggest that profitable risk-adjusted trades could be made using past data.
Volume (Year): 391 (2012)
Issue (Month): 11 ()
|Contact details of provider:|| Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/|
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.:
- Zunino, Luciano & Zanin, Massimiliano & Tabak, Benjamin M. & Pérez, Darío G. & Rosso, Osvaldo A., 2009. "Forbidden patterns, permutation entropy and stock market inefficiency," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(14), pages 2854-2864.
- Oh, Gabjin & Kim, Seunghwan & Eom, Cheoljun, 2007. "Market efficiency in foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 209-212.
- Timmermann, Allan & Granger, Clive W. J., 2004.
"Efficient market hypothesis and forecasting,"
International Journal of Forecasting,
Elsevier, vol. 20(1), pages 15-27.
- Granger, Clive & Timmermann, Allan G, 2002. "Efficient Market Hypothesis and Forecasting," CEPR Discussion Papers 3593, C.E.P.R. Discussion Papers.
- Coronel-Brizio, H.F. & Hernández-Montoya, A.R. & Huerta-Quintanilla, R. & Rodríguez-Achach, M., 2007. "Evidence of increment of efficiency of the Mexican Stock Market through the analysis of its variations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 380(C), pages 391-398.
- repec:ebl:ecbull:v:7:y:2007:i:1:p:1-11 is not listed on IDEAS
- Christopher J. Neely, 1997. "Technical analysis in the foreign exchange market: a layman's guide," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 23-38.
- Costa, Rogério L. & Vasconcelos, G.L., 2003. "Long-range correlations and nonstationarity in the Brazilian stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 329(1), pages 231-248.
- R. L. Costa & G. L. Vasconcelos, 2003. "Long-range correlations and nonstationarity in the Brazilian stock market," Papers cond-mat/0302342, arXiv.org.
- Tóth, Bence & Kertész, János, 2006. "Increasing market efficiency: Evolution of cross-correlations of stock returns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 360(2), pages 505-515.
- 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.
- Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
- Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
- Eom, Cheoljun & Choi, Sunghoon & Oh, Gabjin & Jung, Woo-Sung, 2008. "Hurst exponent and prediction based on weak-form efficient market hypothesis of stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(18), pages 4630-4636.
- Sergio R. S. Souza & Benjamin M. Tabak & Daniel O. Cajueiro, 2008. "Long-Range Dependence In Exchange Rates: The Case Of The European Monetary System," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(02), pages 199-223.
- Cleiton Taufemback & Ricardo Giglio & Sergio Da Silva, 2011. "Algorithmic complexity theory detects decreases in the relative efficiency of stock markets in the aftermath of the 2008 financial crisis," Economics Bulletin, AccessEcon, vol. 31(2), pages 1631-1647.
- Skjeltorp, Johannes A, 2000. "Scaling in the Norwegian stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 283(3), pages 486-528.
- Muniandy, S.V. & Lim, S.C. & Murugan, R., 2001. "Inhomogeneous scaling behaviors in Malaysian foreign currency exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 301(1), pages 407-428.
- 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.
- Zivot, Eric, 2000. "Cointegration and forward and spot exchange rate regressions," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 785-812, December.
- Cajueiro, Daniel O. & Tabak, Benjamin M., 2004. "Evidence of long range dependence in Asian equity markets: the role of liquidity and market restrictions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 342(3), pages 656-664.
- Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 319-338, November.
- Podobnik, Boris & Fu, Dongfeng & Jagric, Timotej & Grosse, Ivo & Eugene Stanley, H., 2006. "Fractionally integrated process for transition economics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 362(2), pages 465-470.
- Epaminondas Panas, 2001. "Estimating fractal dimension using stable distributions and exploring long memory through ARFIMA models in Athens Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 11(4), pages 395-402.
- Barkoulas, John T. & Baum, Christopher F., 1996. "Long-term dependence in stock returns," Economics Letters, Elsevier, vol. 53(3), pages 253-259, December.
- Christopher F. Baum & John Barkoulas, 1996. "Long Term Dependence in Stock Returns," Boston College Working Papers in Economics 314., Boston College Department of Economics.
- Couillard, Michel & Davison, Matt, 2005. "A comment on measuring the Hurst exponent of financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 348(C), pages 404-418. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:391:y:2012:i:11:p:3170-3179. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If references are entirely missing, you can add them using this form.