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Foreign Exchange Market Efficiency Tests in Sub-Saharan Africa


  • Aron, Janine
  • Ayogu, Melvin


Are frequents in freely floating exchange rates attributable to stabilising speculation reflecting changes in the fundamental determinants of currencies or to destabilising behaviour of various kinds, driving prices away from fundamentals, and creating 'excess' volatility? This paper, motivated by the need to assess appropriate tests for efficiency for the growing range of liberalised and liberalising foreign exchange markets in Sub-Saharan African countries, has the following objectives: ( ) briefly to survey the empirical methodology for testing market efficiency in the forex market, with an emphasis on integrating the new cointegration methodology; (ii) highlighting the significant data difficulties in empirical work, given controls and frequent structural breaks, for the use of these techniques in Africa; (iii) illustrating the way in which some of these techniques can be applied in South Africa and some other African countries; and (iv) suggesting further research on efficiency that could be carried out using similar data. Copyright 1997 by Oxford University Press.

Suggested Citation

  • Aron, Janine & Ayogu, Melvin, 1997. "Foreign Exchange Market Efficiency Tests in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 150-192, Supplemen.
  • Handle: RePEc:oup:jafrec:v:6:y:1997:i:3:p:150-92

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    References listed on IDEAS

    1. Yeats, Alexander J, 1990. "Do African Countries Pay More for Imports? Yes," World Bank Economic Review, World Bank Group, vol. 4(1), pages 1-20, January.
    2. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
    3. Corden, W M, 1972. "Economies of Scale and Customs Union Theory," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages 465-475, May-June.
    4. Srivastava, Rajendra K & Green, Robert T, 1986. "Determinants of Bilateral Trade Flows," The Journal of Business, University of Chicago Press, vol. 59(4), pages 623-640, October.
    5. Summers, Robert & Heston, Alan, 1988. "A New Set of International Comparisons of Real Product and Price Levels Estimates for 130 Countries, 1950-1985," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(1), pages 1-25, March.
    6. Harry G. Johnson, 1965. "An Economic Theory of Protectionism, Tariff Bargaining, and the Formation of Customs Unions," Journal of Political Economy, University of Chicago Press, vol. 73, pages 256-256.
    7. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    Cited by:

    1. Giannellis, Nikolaos & Papadopoulos, Athanasios P., 2009. "Testing for efficiency in selected developing foreign exchange markets: An equilibrium-based approach," Economic Modelling, Elsevier, vol. 26(1), pages 155-166, January.
    2. Abullah M. Noman & Minhaz U. Ahmed, 2008. "Efficiency of the foreign exchange markets in South Asian Countries," AIUB Bus Econ Working Paper Series AIUB-BUS-ECON-2008-18, American International University-Bangladesh (AIUB), Office of Research and Publications (ORP), revised Jun 2008.
    3. Janine Aron & John Muellbauer & B. Smit, 2004. "A Structural Model of the Inflation Process in South Africa," CSAE Working Paper Series 2004-08, Centre for the Study of African Economies, University of Oxford.
    4. 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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