Exchange-rate return predictability and the adaptive markets hypothesis: Evidence from major foreign exchange rates
Olivier Darné and
Jae Kim ()
Journal of International Money and Finance, 2012, vol. 31, issue 6, 1607-1626
This study examines return predictability of major foreign exchange rates by testing for martingale difference hypothesis (MDH) using daily and weekly nominal exchange rates from 1975 to 2009. We use three alternative tests for the MDH, which include the wild bootstrap automatic variance ratio test, generalized spectral test, and Dominguez–Lobato consistent tests. We evaluate time-varying return predictability by applying these tests with fixed-length moving sub-sample windows. While exchange rate returns are found to be unpredictable most of times, we do observe a number of episodes of statistically significant return predictability. They are mostly associated with the major events such as coordinated central bank interventions and financial crises. This finding suggests that return predictability of foreign exchange rates occurs from time to time depending on changing market conditions, consistent with the implications of the adaptive markets hypothesis.
Keywords: Adaptive markets hypothesis; Martingale difference hypothesis; Variance ratio test; Spectral test (search for similar items in EconPapers)
JEL-codes: G14 G15 C12 C14 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Exchange-rate return predictability and the adaptive markets hypothesis: Evidence from major foreign exchange rates (2012)
Working Paper: Exchange-Rate Return Predictability and the Adaptive Markets Hypothesis: Evidence from Major Foreign Exchange Rates (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:6:p:1607-1626
Access Statistics for this article
Journal of International Money and Finance is currently edited by J. R. Lothian
More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Haili He ().