Weak-Form Efficiency of Foreign Exchange Markets of Developing Economies

Guneratne Wickremasinghe and Jae Kim

Journal of Emerging Market Finance, 2008, vol. 7, issue 2, 169-196

Abstract: This study examines the empirical validity of the weak-form Efficient Market Hypothesis (EMH) for the foreign exchange market of Sri Lanka, using a battery of (univariate and panel) unit root tests, including those that allow for structural breaks. Monthly exchange rates for four major currencies (Indian rupee, UK pound, US dollar and Japanese yen) vis–à –vis the Sri Lankan rupee are considered in the empirical analysis. The results indicate that the four exchange rates studied follow a random walk, thus supporting the validity of the weak-form EMH. These results have strong implications for the participants of the foreign exchange market of Sri Lanka and government policy makers.

Keywords: Efficient market hypothesis; exchange rates; unit root tests; panel data; structural breaks; JEL Classification: F31; JEL Classification: G14 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:7:y:2008:i:2:p:169-196

DOI: 10.1177/097265270800700203

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