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Are exchange rate movements predictable in Asia-Pacific markets? Evidence of random walk and martingale difference processes

  • Al-Khazali, Osamah M.
  • Pyun, Chong Soo
  • Kim, Daewon
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    This study investigates the random walk (RW) and the martingale difference sequence (MDS) processes for the Australian dollar and seven Asian currencies relative to three benchmark currencies between 1993 and 2008. We use Kim's (2009) Automatic Variance Ratio (AVR) test for the RW and Kuan and Lee's (2004) test for the MDS. The null of RW or MDS hypotheses is not rejected for three currencies: Australian dollar and Korean won for the post-Asian financial crisis period tested by MDS, and Malaysian ringgit for the entire test period as well as the pre-Asian financial crisis period when the currency is evaluated by the AVR. As for the post-Asian crisis, six other Asian currencies including Malaysian ringgit show no discernible improvement toward market efficiency. Our findings have broad policy implications — investors may be able to exploit time-varying movements of the returns of the five currencies which can be identified by technical trading rules for profitable trading.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1059056011000840
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    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 21 (2012)
    Issue (Month): 1 ()
    Pages: 221-231

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    Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:221-231
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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