The Role of Long Memory on the Efficiency of Foreign Exchange Markets: An Ampirical Research in the Turkish Foreign Exchange Market

Arife Ozdemýr, Gizem Vergili and Ismail Celýk

Journal of BRSA Banking and Financial Markets, 2018, vol. 12, issue 1, 87-107

Abstract: Reflecting all the information reaching the markets in the prices, regardless of this any reason and direction, prevents predicting the future with reference to historical data and obtaining abnormal return against other investors. The aim of this paper is to reveal whether the Turkish Exchange Markets are efficient in weak form by using dual long memory models. The results of ARFIMA-FIGARCH model, which was established to examine the dual long memory, show the volatility of return has a long memory property. According to results of the research, it is determined that Turkish Foreign Exchange Market is not efficient in weak form for related analysis period. Although the future volatility of return is predictiable by taking advantage of historical data, also the volatility arisen by Central Bank’s interventions to exchange rates has been detected to fade in long term, Turkish Foreign Exchange Market which is stable, has long term equilibrium character in furtherance of the purchasing power parity theory, it can be clearly understood from the coefficient of the d parameter, which represents the long memory in volatility.

Keywords: Exchange Rate; Efficient Market Hypothesis; Long Memory; ARFIMA-FIGARCH Model (search for similar items in EconPapers)
JEL-codes: C01 F31 G15 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:bdd:journl:v:12:y:2018:i:1:p:87-107

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