Testing the Martingale Property of Exchange Rates: A Replication

Jorge Belaire-Franch and Contreras Dulce
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Contreras Dulce: Universitat de València

Studies in Nonlinear Dynamics & Econometrics, 2010, vol. 15, issue 1, 19

Abstract: In this paper, we test the martingale property of a set of U.S. exchange rates already analyzed in a recent paper by Yilmaz [J. of Buss. and Ec. Stat., 2003]. We claim that the tests used by Yilmaz are not the most convenient to test the martingale hypothesis (or the equivalent martingale difference of the returns); hence, we compute a recently proposed test by Kuan and Lee [Stud. in Nonlin. Dyn. and Econ., 2004] and compare our results to Yilmaz's. Striking differences arise, which can give a clue about the type of data generating process governing the evolution of exchange rates in each sub-period.

Date: 2010
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DOI: 10.2202/1558-3708.1796

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