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Semi-strong informational efficiency in the Polish foreign exchange market

Author

Listed:
  • Luksz Goczek

    (University of Warsaw)

Abstract

During the financial crisis a notion that the Polish exchange rate is not determined effectively was very dominant, because of a contagion effect of the global financial crisis on the Polish economy. In addition, many foreign exchange market analysts explained developments in the Polish exchange market trough a hypothesis that the Polish zloty exchange rate follows other exchange rates. This contradicts market efficiency as this would lead to profitable arbitrage possibility based on past information on other currency prices and possibly gives a rationale for government intervention. In contrast, a foreign exchange market that is efficient needs no government involvement and its participants cannot earn abnormal gains from foreign exchange transactions. Therefore, the aim of the article is to examine the efficiency of the Poland's foreign exchange market. In order to test for market efficiency a cointegration analysis is used. The main argument builds on the semi-strong form of the market efficiency hypothesis. On an informational effective market a pair of prices cannot be cointegrated, because this would imply predictability of one asset price based on the past prices of the other asset. The main hypothesis of the article is verified using Unit Root tests and Johansen Cointegration Test on the pair of EURPLN and USDPLN exchange rates. It is shown that the null hypothesis cannot be rejected; therefore, the Polish foreign exchange market is efficient in the semi-strong sense.

Suggested Citation

  • Luksz Goczek, 2015. "Semi-strong informational efficiency in the Polish foreign exchange market," Working Papers 4/2015, Institute of Economic Research, revised Jan 2015.
    • Handle: RePEc:pes:wpaper:2015:no4
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    More about this item

    Keywords

    foreign exchange market efficiency; cointegration analysis;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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