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Testing for martingale difference hypothesis with structural breaks: Evidence from AsiaePacific foreign exchange markets

Author

Listed:
  • Afees A. Salisu
  • Tirimisiyu F. Oloko
  • Oluwatomisin J. Oyewole

Abstract

This study tests for martingale difference hypothesis (MDH) in nine selected Foreign Exchange (FX) markets from AsiaePacific countries. Its main contributions to the literature include: (i) it adopts recent techniques in both the Autocorrelation based and Spectrum based tests for MDH, namely; the Wild Bootstrap Automatic Variance Ratio test by Kim (2009) and the Wild Bootstrap Generalized Spectral test by Escanciano and Velasco (2006); (ii) it determines structural breaks endogenously for all the returns series using Perron (2006) unit root test with structural break, and (iii) based on the Perron results, it obtains two sub-samples and thereafter tests for MDH. Empirical result from this study shows that FX market efficiency could be inconsistent over time due to changes in policies and events. Thus, a preliminary test for the presence significant structural break may be necessary when testing for MDH.

Suggested Citation

  • Afees A. Salisu & Tirimisiyu F. Oloko & Oluwatomisin J. Oyewole, 2016. "Testing for martingale difference hypothesis with structural breaks: Evidence from AsiaePacific foreign exchange markets," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 16(4), pages 210-218, December.
    • Handle: RePEc:bor:bistre:v:16:y:2016:i:4:p:210-218
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    Citations

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    Cited by:

    1. Asif, Raheel & Frömmel, Michael, 2022. "Testing Long memory in exchange rates and its implications for the adaptive market hypothesis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 593(C).
    2. Adeyeye Patrick Olufemi & Aluko Olufemi Adewale & Migiro Stephen Oseko, 2017. "Efficiency of Foreign Exchange Markets in Sub-Saharan Africa in the Presence of Structural Break: A Linear and Non-Linear Testing Approach," Journal of Economics and Behavioral Studies, AMH International, vol. 9(4), pages 122-131.

    More about this item

    Keywords

    Martingale difference hypothesis (MDH); Structural breaks; AsiaePacific; FX market;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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