Efficiency of Foreign Exchange Markets: A Developing Country Perspective

Abstract

ABSTRACT

Weak-Form Efficiency of Foreign Exchange Market in the Organisation for Economic Cooperation and Development Countries: Unit Root Test

“…These results are consistent with the weak form of the efficient market hypothesis. This is consistent with findings in the literature of Aron (1997), Wickremasinghe (2004), Kasman and Ayhan (2007) and Kang (2008) but contradicts to findings by Wu and Chen (1998).…”

“…It examines whether this electronic inter-dealer market demonstrates the weak-form efficiency property based on pattern of autocorrelation in the rate of return's existence and consistency of autocorrelation pattern that allows dealers to take profit from it. Wickremasinghe (2004) examines the weak efficiency of the foreign exchange market in Sri Lanka using monthly data for six currencies (pairs) for the period January 1986 to November 2000. The paper conducts ADF and PP tests for weak form and Johansen cointegration, Granger causality and variance decomposition analysis tests for semi-strong form and show inconsistent results.…”

Testing the Efficient Market Hypothesis in an Emerging Market: Evidence from Forex Market in Mauritius

“…These results indicate that the participants in the foreign exchange market in Mauritius cannot sub-divide some rule or technique that can be utilized to forecast future movements of an exchange rate from its past values. 4 See Chaudhery [7], Wickremasinghe [8], Mabakeng [25] among others but inconsistent with Cicek [26] and Cooray and Wickremasinghe [17]. 5 See Kisto et al [12], Mabakeng [25], Chaudhery [7], Ibrahim et al [19], Wickremasinghe [8] among others but inconsistent with Aron [15], Aroskar [16], Kuntara and Lee [18] and Krishnaveni et al [22].…”

“…The trace statistic analysed the null hypothesis that there are at most r cointegrating vectors against the alternative hypothesis of r or more cointegrating vectors. Meanwhile, in the maximal eigenvalue statistic test the null hypothesis of r cointegrating vectors is tested against the alternative of r + 1 cointegrating vectors [8]. To make inferences regarding the number of cointegrating relationships, trace and maximum eigenvalue statistics are compared with the critical values tabulated in Osterwald-Lenum (1992).…”

“…On the contrary, foreign exchange inefficiency may lead to the development of exchange rate movements and provides opportunities for profitable exchange transactions Wickremasing he [8]. If a stock/currency market is inefficient, (the pricing system may not assure the efficient allocation of capital in an economy which impacts negatively to the aggregate economy) Hamid and Akash [9].…”