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A re-examination of variance-ratio test of random walks in foreign exchange rates

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  • Yuanchen Chang

Abstract

This paper employs a variance ratio test to reexamine the random walk hypothesis for the Canadian dollar, French franc, Deutsche mark, Japanese yen and British pound. In addition to standard normal test statistics, the bootstrap resampling technique is used to calculate the significance levels of variance ratio statistics over the period 7 August 1974 to 30 December 1998. The results provide evidence rejecting the random walk hypothesis for the Japanese yen over the entire sample, while the results for the other four currencies are inconclusive. Furthermore, subperiod results show that from 1989 onwards the random walk hypothesis cannot be rejected for the Canadian dollar, French franc, Deutsche mark, and British pound.

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  • Yuanchen Chang, 2004. "A re-examination of variance-ratio test of random walks in foreign exchange rates," Applied Financial Economics, Taylor & Francis Journals, vol. 14(9), pages 671-679.
    • Handle: RePEc:taf:apfiec:v:14:y:2004:i:9:p:671-679
    DOI: 10.1080/0960310042000233449
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    2. Fahad Almudhaf, 2014. "Testing for random walk behaviour in CIVETS exchange rates," Applied Economics Letters, Taylor & Francis Journals, vol. 21(1), pages 60-63, January.
    3. Yang, Yan-Hong & Shao, Ying-Hui & Shao, Hao-Lin & Stanley, H. Eugene, 2019. "Revisiting the weak-form efficiency of the EUR/CHF exchange rate market: Evidence from episodes of different Swiss franc regimes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 523(C), pages 734-746.
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    5. Amelie Charles & Olivier Darne, 2009. "Testing for Random Walk Behavior in Euro Exchange Rates," Economie Internationale, CEPII research center, issue 119, pages 25-45.
    6. Petr Zeman & Martin Maršík, 2013. "High-frequency data and the effectiveness of the spot exchange rate EUR/USD," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(7), pages 2965-2971.
    7. Samih Antoine Azar, 2013. "Mean Aversion in and Persistence of Shocks to the US Dollar: Evidence from Nine Foreign Currencies," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 723-733.
    8. Charles, Amélie & Darné, Olivier & Kim, Jae H., 2012. "Exchange-rate return predictability and the adaptive markets hypothesis: Evidence from major foreign exchange rates," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1607-1626.
    9. Azad, A.S.M. Sohel, 2009. "Random walk and efficiency tests in the Asia-Pacific foreign exchange markets: Evidence from the post-Asian currency crisis data," Research in International Business and Finance, Elsevier, vol. 23(3), pages 322-338, September.
    10. 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.
    11. Diniz-Maganini, Natalia & Rasheed, Abdul A. & Sheng, Hsia Hua, 2023. "Price efficiency of the foreign exchange rates of BRICS countries: A comparative analysis," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(1).
    12. Chuluun, Tuugi & Eun, Cheol S. & Kiliç, Rehim, 2011. "Investment intensity of currencies and the random walk hypothesis: Cross-currency evidence," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 372-387, February.

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