Abstract: This paper tests the efficiency condition in the foreign exchange rate market using cointegration analysis and error correction models. The statistical technique is applied to test the hypothesis for both the forward and futures market for five currencies over the period 1977-1990. Empirical evidence is found supporting the efficiency criterion in four of the five currencies tested. The presence of cointegration between alternate currency prices implies that they are regarded as one asset, domestic money. Our results confirm that although in the short run the exchange rate series are characterized by dynamic specifications, they are all driven by the same market fundamentals obeying the long-run equilibrium contraints.
Publication Year: 2011
Publication Date: 2011-10-13
Language: en
Type: article
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Cited By Count: 6
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