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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


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.

Suggested Citation

  • Al-Khazali, Osamah M. & Pyun, Chong Soo & Kim, Daewon, 2012. "Are exchange rate movements predictable in Asia-Pacific markets? Evidence of random walk and martingale difference processes," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 221-231.
  • Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:221-231
    DOI: 10.1016/j.iref.2011.07.002

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    References listed on IDEAS

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    Cited by:

    1. Charles, Amélie & Darné, Olivier & Kim, Jae H., 2012. "Exchange-rate return predictability and the adaptive markets hypothesis: Evidence from major foreign exchange rates," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1607-1626.
    2. Kristoufek, Ladislav & Vosvrda, Miloslav, 2016. "Gold, currencies and market efficiency," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 449(C), pages 27-34.
    3. Mensi, Walid & Hammoudeh, Shawkat & Yoon, Seong-Min, 2014. "Structural breaks and long memory in modeling and forecasting volatility of foreign exchange markets of oil exporters: The importance of scheduled and unscheduled news announcements," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 101-119.
    4. de Resende, Charlene C. & Pereira, Adriano C.M. & Cardoso, Rodrigo T.N. & de Magalhães, A.R. Bosco, 2017. "Investigating market efficiency through a forecasting model based on differential equations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 474(C), pages 199-212.
    5. Yu, Hao & Nartea, Gilbert V. & Gan, Christopher & Yao, Lee J., 2013. "Predictive ability and profitability of simple technical trading rules: Recent evidence from Southeast Asian stock markets," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 356-371.
    6. Tsung-Wu Ho & Wan-Shin Mo, 2016. "Testing the Persistence of the Forward Premium: Structural Changes or Misspecification?," Open Economies Review, Springer, vol. 27(1), pages 119-138, February.
    7. 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.

    More about this item


    Efficiency of foreign exchange markets; Random walk and martingale difference hypotheses; Emerging currency markets;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading


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