EFFICIENCY OF FOREIGN EXCHANGE MARKETS: A DEVELOPING COUNTRY PERSPECTIVE

Guneratne Banda Wickremasinghe

International Finance from EconWPA

Abstract: This study tests weak and semi-strong form efficiency of the foreign exchange market in Sri Lanka using six bilateral foreign exchange rates during the recent float. Weak-form efficiency is examined using unit root tests while semi-strong form efficiency is tested using co- integration and Granger causality tests and variance decomposition analysis. Results indicate that the Sri Lankan foreign exchange market is consistent with the weak -form of the Efficient Market Hypothesis. However, the results provide evidence against the semi - strong version of the Efficient Market hypothesis. These results have important implications for government policy makers and participants in the foreign exchange market of Sri Lanka.

Keywords: Efficient market hypothesis; Sri Lanka; foreign exchange market; Japanese yen; Variance decomposition (search for similar items in EconPapers)
JEL-codes: F31 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-fin and nep-ifn
Date: 2004-06-16
Note: Type of Document - pdf; pages: 24
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpif:0406004

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