Exchange rate regimes and price efficiency: Empirical examination of the impact of financial crisis

Natalia Diniz-Maganini, Abdul A. Rasheed and Hsia Hua Sheng

Journal of International Financial Markets, Institutions and Money, 2021, vol. 73, issue C

Abstract: We analyze how different currency regimes influence the price efficiency of exchange rates. Based on an analysis of a sample of 20 exchange rates (covering 39 countries) over a 15-year period using MF-DFA (Multifractal Detrended Fluctuation Analysis), we find that currencies of countries following a Free Float regime show greater price efficiency than currencies of countries following a Managed Float regime. We also examined the impact of the financial crisis of 2008–09 on the price efficiency of these currencies. Our results suggest that currencies following the Free Float exchange regime experienced significantly greater deterioration in their price efficiency than currencies under Managed Float regimes. Even more interestingly, the efficiency of the currencies of the Free Float countries have not fully recovered even a decade after the crisis.

Keywords: Market efficiency; Foreign exchange rate; Multifractal theory; Financial crisis (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:73:y:2021:i:c:s1042443121000809

DOI: 10.1016/j.intfin.2021.101361

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