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Testing for inefficiency in emerging markets exchange rates

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  • Lima, Eduardo Jose Araújo
  • Tabak, Benjamin Miranda

Abstract

This paper contributes to the literature on testing the random walk hypothesis by examining multiple variance ratio tests for emerging market exchange rates on a daily and weekly frequency. We have performed these tests using a bootstrap technique, which is robust to heteroscedasticity. We examine countries that have recently adopted floating exchange rate regimes, such as some Asian and Latin American countries, and analyze their recent behavior. Empirical evidence supports the random walk hypothesis on both a daily and weekly frequency. Furthermore, we test for long-range dependence and present evidence of structural breaks in generalized Hurst exponents.

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  • Lima, Eduardo Jose Araújo & Tabak, Benjamin Miranda, 2007. "Testing for inefficiency in emerging markets exchange rates," Chaos, Solitons & Fractals, Elsevier, vol. 33(2), pages 617-622.
    • Handle: RePEc:eee:chsofr:v:33:y:2007:i:2:p:617-622
    DOI: 10.1016/j.chaos.2006.01.043
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    References listed on IDEAS

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    1. Malliaropulos, Dimitrios & Priestley, Richard, 1999. "Mean reversion in Southeast Asian stock markets," Journal of Empirical Finance, Elsevier, vol. 6(4), pages 355-384, October.
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    6. Lee, Chun I. & Pan, Ming-Shiun & Liu, Y. Angela, 2001. "On market efficiency of Asian foreign exchange rates: evidence from a joint variance ratio test and technical trading rules," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 11(2), pages 199-214, June.
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    Cited by:

    1. Sensoy, Ahmet & Tabak, Benjamin M., 2016. "Dynamic efficiency of stock markets and exchange rates," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 353-371.
    2. Takami, Marcelo Yoshio & Tabak, Benjamin Miranda, 2008. "Interest rate option pricing and volatility forecasting: An application to Brazil," Chaos, Solitons & Fractals, Elsevier, vol. 38(3), pages 755-763.
    3. Alia Afzal & Philipp Sibbertsen, 2023. "Long Memory, Spurious Memory: Persistence in Range-Based Volatility of Exchange Rates," Open Economies Review, Springer, vol. 34(4), pages 789-811, September.
    4. Stošić, Darko & Stošić, Dusan & Stošić, Tatijana & Stanley, H. Eugene, 2015. "Multifractal analysis of managed and independent float exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 428(C), pages 13-18.
    5. Sensoy, A., 2013. "Time-varying long range dependence in market returns of FEAS members," Chaos, Solitons & Fractals, Elsevier, vol. 53(C), pages 39-45.
    6. Shyh-wei Chen, 2009. "Random walks in asian foreign exchange markets:evidence from new multiple variance ratio tests," Economics Bulletin, AccessEcon, vol. 29(2), pages 1296-1307.
    7. Amelie Charles & Olivier Darne, 2009. "Testing for Random Walk Behavior in Euro Exchange Rates," Economie Internationale, CEPII research center, issue 119, pages 25-45.
    8. Cajueiro, Daniel O. & Tabak, Benjamin M., 2009. "Testing for long-range dependence in the Brazilian term structure of interest rates," Chaos, Solitons & Fractals, Elsevier, vol. 40(4), pages 1559-1573.
    9. Afees A. Salisu & Taofeek O. Ayinde, 2016. "Testing the Martingale Difference Hypothesis (MDH) with Structural Breaks: Evidence from Foreign Exchanges of Nigeria and South Africa," Journal of African Business, Taylor & Francis Journals, vol. 17(3), pages 342-359, September.

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