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The Efficiency of Foreign Exchange Markets in Pakistan: An Empirical Analysis

Rizwana Bashir (), Rabia Shakir (), Badar Ashfaq () and Atif Hassan ()
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Rizwana Bashir: Assistant Professor, Bahria University, Karachi, Pakistan.
Rabia Shakir: Lecturer, University of Karachi, Pakistan.
Badar Ashfaq: MS scholar, Institute of Business and Technology, Karachi, Pakistan.
Atif Hassan: Assistant professor, DHA Suffa University, Karachi, Pakistan.

Lahore Journal of Economics, 2014, vol. 19, issue 1, 133-149

Abstract: This study investigates the empirical relationship between spot and forward exchange rate efficiency with reference to Pakistan and the efficiency of its foreign exchange market. We use monthly data from the State Bank of Pakistan and KIBOR rates for the period July 2006 to December 2013. Our results indicate that the forward exchange rate does not fully reflect all the information available. Market players may gain the benefits of volatility speculation due to market inefficiency. Pakistan’s foreign exchange market is still small compared to those of other emerging economies, implying that substantial policy work is required.

Keywords: Foreign exchange markets; forward exchange rate efficiency; efficient market hypothesis; emerging economy; real effective exchange rate; Pakistan. markets; forecasting; exchange rate volatility; Pakistan. (search for similar items in EconPapers)
JEL-codes: F30 F31 G10 (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:lje:journl:v:19:y:2014:i:1:p:133-149