On the Efficiency of the Informal Currency Markets: The Case of the Cuban Peso

Alejandro García-Figal (), Alejandro Lage-Castellanos (), Daniel A. Amaro () and R. Mulet ()
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Alejandro García-Figal: University of Havana
Alejandro Lage-Castellanos: University of Havana
Daniel A. Amaro: University of Havana
R. Mulet: University of Havana

Computational Economics, 2025, vol. 65, issue 4, No 18, 2317-2350

Abstract: Abstract Every market leaves its fingerprint in prices time series. The Efficient Market Hypothesis (EMH), considers that prices behave as random walks, a property that has been tested on whole data sets of both formal and informal markets. Here we extend this idea studying the Cuban informal exchange market using two standard tests, the Wald-Wolfowitz runs test and the Variance ratio test. Moreover, while these tests are usually done in the whole data set, we check whether different intervals of the series and the series on different time scales fulfill the EMH. Therefore, we repeated the tests in the fast components of the market obtained from an Empirical Mode Decomposition of the data and on separated time intervals defined through a Hidden Markov Model with two latent variables. We concluded that in all cases the Efficient Market Hypothesis is violated. We finish our work discussing some possible causes and consequences of this inefficiency.

Keywords: Efficient market; Empirical mode decomposition; Hidden markov model; Random walk; Runs test; Variance ratio test (search for similar items in EconPapers)
JEL-codes: C12 D53 E26 G14 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10614-024-10638-w

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