Market efficiency in foreign exchange markets

Oh, Gabjin; Kim, Seunghwan; Eom, Cheoljun

doi:10.1016/j.physa.2007.02.032

Cited by 123 publications

(51 citation statements)

References 16 publications

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“…Though initially developed for measuring the irregularities of a complex nonlinear system, it has been gradually introduced into finance literature as a measure of market efficiency for both stock and foreign exchange market (Pincus et al, 2004, andOh et al 2006). However, the paper for the first time attempts to use this statistics to test for speculative rational bubble in the stock markets.…”

Section: Methodsmentioning

confidence: 99%

Applying Approximate Entropy (ApEn) to Speculative Bubble in the Stock Market

Bhaduri

2014

Journal of Emerging Market Finance

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The paper introduces an order statistic, Approximate Entropy (ApEn), to investigate the presence of speculative bubbles in the equity market. In contrast to the traditional duration dependence test, the paper using Approximate Entropy examines three major events of stock market crash in US, Japan, and India. In addition, the paper also investigates the 1997 Asian crisis using weekly data from seven major Asian indices which includes Hong Kong, Malaysia, Singapore, Korea, Taiwan, Indonesia and Japan.The evidences presented in this study show that there are strong "tale-tell" signs which point to a substantially lower level of ApEn during these crash events.

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Section: Methodsmentioning

confidence: 99%

Applying Approximate Entropy (ApEn) to Speculative Bubble in the Stock Market

Bhaduri

2014

Journal of Emerging Market Finance

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“…The ApEn, which measures the degree of randomness in the time series, was also introduced as the measurement of the degree of efficiency of the financial time series [13,14,15].…”

Section: Methods Of Approximate Entropy Measurementmentioning

confidence: 99%

“…Previous works which introduce and apply the ApEn measurement to the financial data [13,14] and argue that the ApEn value has significant information in terms of measuring degree of efficiency using the foreign exchange data [15] are announced. According to the previous studies, the correlation between the Hurst exponent and ApEn value is negative [13,14,16].…”

Section: Introductionmentioning

confidence: 99%

Relationship between efficiency and predictability in stock price change

Eom

Jung

2008

Physica A: Statistical Mechanics and its Applications

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This study investigates empirically whether the degree of stock market efficiency is related to the prediction power of future price change using the indices of twenty seven stock markets. Efficiency refers to weak-form efficient market hypothesis (EMH) in terms of the information of past price changes. The prediction power corresponds to the hit-rate, which is the rate of the consistency between the direction of actual price change and that of predicted one, calculated by the nearest neighbor prediction method (NN method) using the out-of-sample. In this manuscript, the Hurst exponent and the approximate entropy (ApEn) are used as the quantitative measurements of the degree of efficiency. The relationship between the Hurst exponent, reflecting the various time correlation property, and the ApEn value, reflecting the randomness in the time series, shows negative correlation (ρ H, A = −53% where ρ represents cross-correlation, H the Hurst exponent, and A ApEn). However, the average prediction power on the direction of future price change has the strongly positive correlation with the Hurst exponent (ρ N N , H = 86% where N N represents the average prediction power calculated by the NN method)), and the negative correlation with the ApEn (ρ N N , H = −42%). Therefore, the market index with less market efficiency has higher prediction power for future price change than one with higher market efficiency when we analyze the market using the past price change pattern. Furthermore, we show that the Hurst exponent, a measurement of the long-term memory property, provides more significant information in terms of prediction of future price changes than the ApEn and the NN method.

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“…Another different method developed in statistical physics to test the market efficiency of the financial time series are being used by Oh et al (2007) which investigates the relative market efficiency in financial market data, using the approximate entropy (ApEn) method for a quantification of randomness of time series. The writers use the global daily foreign exchange market indices for 17 countries during two periods from 1984 to 1998 and from 1999 to 2004 in order to study the efficiency in various foreign exchange markets around the market crisis and employ the apron to quantify market efficiency in the foreign exchange markets.…”

Section: Review Of Empirical Evidencementioning

confidence: 99%

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

Ibrahim¹,

Long²,

Ghani³

et al. 2011

IJBM

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This paper will look at the weak-form efficiency of the foreign exchange market in thirty (30) Organization for Economic Cooperation and Development (OECD) countries. We employ Augmented Dickey-Fuller (ADF), Philip-Perron (PP) and Kwiatkowski-Phillips-Schmidt-Shin analysis to examine for the unit root. Using weekly data for the period 2000 to 2007, the results for weak-form efficiency using ADF and PP tests indicate that the exchange rates studied follow random walks. The current value of the exchange rate cannot be predicted using its past values. In addition, the OECD foreign exchange market consistent with the weak-form of the Efficient Market Hypothesis.

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Market efficiency in foreign exchange markets

Cited by 123 publications

References 16 publications

Applying Approximate Entropy (ApEn) to Speculative Bubble in the Stock Market

Applying Approximate Entropy (ApEn) to Speculative Bubble in the Stock Market

Relationship between efficiency and predictability in stock price change

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

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