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On the Efficiency of the Informal Currency Markets: The Case of the Cuban Peso

Author

Listed:
  • Alejandro García-Figal

    (University of Havana
    University of Havana)

  • Alejandro Lage-Castellanos

    (University of Havana
    University of Havana)

  • Daniel A. Amaro

    (University of Havana)

  • R. Mulet

    (University of Havana
    University of Havana)

Abstract

Every market leaves its fingerprint in prices time series. The Efficient Market Hypothesis (EMH), considers that prices behave as random walks, a property that has been tested on whole data sets of both formal and informal markets. Here we extend this idea studying the Cuban informal exchange market using two standard tests, the Wald-Wolfowitz runs test and the Variance ratio test. Moreover, while these tests are usually done in the whole data set, we check whether different intervals of the series and the series on different time scales fulfill the EMH. Therefore, we repeated the tests in the fast components of the market obtained from an Empirical Mode Decomposition of the data and on separated time intervals defined through a Hidden Markov Model with two latent variables. We concluded that in all cases the Efficient Market Hypothesis is violated. We finish our work discussing some possible causes and consequences of this inefficiency.

Suggested Citation

  • Alejandro García-Figal & Alejandro Lage-Castellanos & Daniel A. Amaro & R. Mulet, 2025. "On the Efficiency of the Informal Currency Markets: The Case of the Cuban Peso," Computational Economics, Springer;Society for Computational Economics, vol. 65(4), pages 2317-2350, April.
    • Handle: RePEc:kap:compec:v:65:y:2025:i:4:d:10.1007_s10614-024-10638-w
    DOI: 10.1007/s10614-024-10638-w
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    Keywords

    Efficient market; Empirical mode decomposition; Hidden markov model; Random walk; Runs test; Variance ratio test;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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