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Variance ratio testing of the Australian forward foreign exchange market

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  • Joanne Copp
  • Robert Brooks

Abstract

This paper explores variance ratio testing of the Australian forward foreign exchange market. Our results support autocorrelation in our first sample period (July 1985 to January 1990) but an absence of autocorrelation in our second sample period (February 1990 to September 1995). This is consistent with greater efficiency in the forward foreign exchange market post 1990. This is consistent with the 'peso' problem associated with Australia's foreign debt disappearing with the acceptance of the arguments of Pitchford (Economic Papers, 8, 1989) and Corden (Economic Papers, 10, 1991) that the foreign debt does not matter.

Suggested Citation

  • Joanne Copp & Robert Brooks, 1999. "Variance ratio testing of the Australian forward foreign exchange market," Applied Economics Letters, Taylor & Francis Journals, vol. 6(7), pages 417-419.
    • Handle: RePEc:taf:apeclt:v:6:y:1999:i:7:p:417-419
    DOI: 10.1080/135048599352925
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    References listed on IDEAS

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    1. Kenneth A. Froot & Jeffrey A. Frankel, 1989. "Forward Discount Bias: Is it an Exchange Risk Premium?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(1), pages 139-161.
    2. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    3. Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 319-338, November.
    4. Lo, Andrew W, 1991. "Long-Term Memory in Stock Market Prices," Econometrica, Econometric Society, vol. 59(5), pages 1279-1313, September.
    5. Kenneth A. Froot & Jeffrey A. Frankel, 1989. "Forward Discount Bias: Is it an Exchange Risk Premium?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(1), pages 139-161.
    6. Jeremy Smith & David W.R. Gruen, 1989. "A Random Walk Around the $A: Expectations, Risk, Interest Rates and Consequences for External Imbalance," RBA Research Discussion Papers rdp8906, Reserve Bank of Australia.
    Full references (including those not matched with items on IDEAS)

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