An empirical examination of exchange market efficiency

Swarna Dutt and Dipak Ghosh

Applied Economics Letters, 1999, vol. 6, issue 2, 89-91

Abstract: The foreign exchange market efficiency hypothesis is empirically examined for three major currencies, over the volatile 1980s. The recently available null of cointegration procedure is applied to test for the stationarity of the series under consideration and also for the cointegration status between series, the market efficiency determinant. The strength of this methodology is its ability to distinguish between unit and near unit roots. These results are then compared with our previous study where we applied the PhillipsHansen Fully Modified Ordinary Least Squares (FMOLS) procedure, which can separate between strong and weak form efficiency. In both cases, the market efficiency hypothesis is rejected for one out of three currencies, possibly due to the presence of the risk premium and/or market imperfections.

Date: 1999
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DOI: 10.1080/135048599353690

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