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Asian Review of Financial Research, Vol., No..
pp.954~980
pp.954~980
New Nonparametric Tests for the Efficiency in Foreign Exchange Markets
Jae H. Kim School of Economics and Finance La Trobe University Bundoora, VIC 3086, Australia
Chong Soo Pyun Department of Finance University of Memphis Memphis, TN 38152
Osamah M. Al-Khazali Accounting and Finance Department School of Business and Management American University
Using Kim¡¯s (2009) wild bootstrapped automatic variance ratio (AVR) test and Kuan and Lee¡¯s (2004) martingale difference sequence (MDS) test, we investigate the random walk (RW) and the martingale hypotheses for the Australian dollar and seven Asian currencies between 1993 and 2008. Our findings are that (i) the hypotheses of RW and MDS are rejected for all eight currencies for the entire study period as well as for the sub-period leading up to the Asian financial crisis in 1997; (ii) for the post-Asian crisis period, only the Australian dollar, Malaysian ringgit, and Korean won behave as weak-form efficient while the rest of five Asian currencies show no discernible improvement toward market efficiency. Our findings have broad policy implications - investors can exploit time-varying movements of the returns of the five currencies which can be identified by technical trading rules for profitable trading.
Jae H. Kim
Chong Soo Pyun
Osamah M. Al-Khazali
Using Kim¡¯s (2009) wild bootstrapped automatic variance ratio (AVR) test and Kuan and Lee¡¯s (2004) martingale difference sequence (MDS) test, we investigate the random walk (RW) and the martingale hypotheses for the Australian dollar and seven Asian currencies between 1993 and 2008. Our findings are that (i) the hypotheses of RW and MDS are rejected for all eight currencies for the entire study period as well as for the sub-period leading up to the Asian financial crisis in 1997; (ii) for the post-Asian crisis period, only the Australian dollar, Malaysian ringgit, and Korean won behave as weak-form efficient while the rest of five Asian currencies show no discernible improvement toward market efficiency. Our findings have broad policy implications - investors can exploit time-varying movements of the returns of the five currencies which can be identified by technical trading rules for profitable trading.
Efficiency of foreign exchange markets,Random walk and martingale difference hypotheses,Emerging currency markets
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