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An empirical examination of exchange market efficiency

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  • Swarna Dutt
  • Dipak Ghosh

Abstract

The foreign exchange market efficiency hypothesis is empirically examined for three major currencies, over the volatile 1980s. The recently available null of cointegration procedure is applied to test for the stationarity of the series under consideration and also for the cointegration status between series, the market efficiency determinant. The strength of this methodology is its ability to distinguish between unit and near unit roots. These results are then compared with our previous study where we applied the PhillipsHansen Fully Modified Ordinary Least Squares (FMOLS) procedure, which can separate between strong and weak form efficiency. In both cases, the market efficiency hypothesis is rejected for one out of three currencies, possibly due to the presence of the risk premium and/or market imperfections.

Suggested Citation

  • Swarna Dutt & Dipak Ghosh, 1999. "An empirical examination of exchange market efficiency," Applied Economics Letters, Taylor & Francis Journals, vol. 6(2), pages 89-91.
    • Handle: RePEc:taf:apeclt:v:6:y:1999:i:2:p:89-91
    DOI: 10.1080/135048599353690
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    References listed on IDEAS

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    1. Hakkio, Craig S. & Rush, Mark, 1989. "Market efficiency and cointegration: an application to the sterling and deutschemark exchange markets," Journal of International Money and Finance, Elsevier, vol. 8(1), pages 75-88, March.
    2. Swarna Dutt & Dipak Ghosh, 1995. "The foreign exchange market efficiency hypothesis revisited," Applied Economics Letters, Taylor & Francis Journals, vol. 2(9), pages 311-315.
    3. Baillie, Richard T & Bollerslev, Tim, 1989. " Common Stochastic Trends in a System of Exchange Rates," Journal of Finance, American Finance Association, vol. 44(1), pages 167-181, March.
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    Cited by:

    1. Phengpis, Chanwit, 2006. "Market efficiency and cointegration of spot exchange rates during periods of economic turmoil: Another look at European and Asian currency crises," Journal of Economics and Business, Elsevier, vol. 58(4), pages 323-342.

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