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Market efficiency in foreign exchange market

Namhoon Lee, Wonseok Choi and Yuntaek Pae

Economics Letters, 2021, vol. 205, issue C

Abstract: The study examines foreign exchange market overreaction for various combinations of formation and testing periods over 30 years. First, we find that reversal is significant for longer test periods and longer formation periods. Second, we find no evidence of persistent momentum or reversal during the entire sample period. Thus, the results of overreaction studies should be sensitive to the sample period. Third, we observe losers outperform most of the formation and test periods combinations except for the short-term when spot rates are used to construct portfolios. We observe the evidence of overreaction becomes stronger with the longer formation and test period.

Keywords: Overreaction; Reversal; Momentum; Foreign exchange rate; Efficient market hypothesis (search for similar items in EconPapers)
JEL-codes: F31 G14 G15 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.econlet.2021.109931

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