scholarly journals MARKET EFFICIENCY IN ITS WEAK FORM: THE PRE-COVID AND COVID INDONESIA ANALYSIS

2021 ◽  
Author(s):  
Rui Dias ◽  
◽  
Paula Heliodoro ◽  
Paulo Alexandre ◽  
Hortense Santos ◽  
...  
Keyword(s):  
Exchange Rates ◽  
Foreign Exchange Market ◽  
Weak Form ◽  
Portfolio Diversification ◽  
Exchange Market ◽  
Additional Risk ◽  
Random Walk Hypothesis ◽  
Global Pandemic ◽  
Diversification Strategies ◽  
Exchange Markets

This essay aims to analyze the efficiency, in its weak form, in the Exchange Markets IDR/MYR (Indonesia-Malaysia), IDR/PHP (Indonesia-Philippines), IDR/SGD (Indonesia-Singapore), IDR/THB (Indonesia-Thailand), IDR/GBP (Indonesia-UK), IDR/US (Indonesia-USA), IDR/EUR (Indonesia-Euro Zone/Europe). The sample comprises the period from September 3, 2018, to October 20, 2020, and the sample was partitioned into two subperiods: Pre-Covid and Covid. To carry out this analysis, different approaches were undertaken to assess whether: (i) the global pandemic promoted in(efficiency) in the exchange rates of Indonesia vs Malaysia, Philippines, Singapore, Thailand, UK, USA, Eurozone? The results suggest that in the Pre-Covid subperiod we can see that the random walk hypothesis is rejected, IDR/MYR (0.61), IDR/SGD (0.60), IDR/US (0.59), IDR/THB (0.56), IDR/EUR (0.55), IDR/GBP (0.54), except for the IDR/PHP pair (0.45) which evidences anti persistence. Already in the Covid period, we noticed that persistence increased significantly, like followed, IDR/EUR (0.82), IDR/PHP (0.81) IDR/SGD (0.80), IDR/US (0.80), IDR/MYR (0.78), IDR/THB (0.71), IDR/GBP (0.62). These findings show high levels of arbitrage, i.e., investors will be able to obtain abnormal profitability without incurring the additional risk, which could jeopardize the implementation of efficient portfolio diversification strategies due to market imbalance. The authors believe that these findings can help policymakers formulate a comprehensive response to improve the efficiency of the foreign exchange market during a global pandemic event.

scholarly journals THE IMPACT OF COVID-19 ON EXCHANGE RATE VOLATILITY: AN ECONOPHYSICS APPROACH

2020 ◽  
Author(s):  
Rui Dias ◽  
◽  
Hortense Santos ◽  
Keyword(s):  
Exchange Rates ◽  
Correlation Coefficient ◽  
Cross Correlation ◽  
Exchange Rate Volatility ◽  
Correlation Coefficients ◽  
Weak Form ◽  
Fluctuation Analysis ◽  
Global Pandemic ◽  
Exchange Markets ◽  
The Impact

This paper aims to analyze the efficiency, in its weak form, between exchange rates, US-RMB, US-EUR, US-JPY, US-MYR, US-PHP, US-SGD, US-THB, US-CHF, US-GBP, in the period from July 1, 2019 to October 27, 2020. To perform this analysis, different approaches were undertaken to assess whether: (i) the impact of the global pandemic created long memories in international foreign exchange markets? The results of the exponents Detrended Fluctuation Analysis (DFA) show that the exchange rates US-THB (0.60), US-MYR (0.59), US-SGD (0. 59), present long memories, to a lesser extent the exchange pairs US-GBP (0.56), US-EUR (0.53). On the other side, exchange rates US-RMB (0. 47), US-JPY (0. 43), US-CHF (0. 46), US-PHP (0. 38) show anti persistence, while the Detrended cross-correlation coefficient (𝑝𝐷𝐶𝐶𝐴) results show 19 average correlation coefficients (≌ 0.333 → ≌ 0.666), 10 weak correlation coefficient (≌ 0,000 → ≌ 0.333), 7 strong non-trend cross correlation coefficients (0.666→ ≌ 1,000). In conclusion, we show that the exchange pairs analyzed show some predictability, that is, there are levels of arbitrage that can be explored by investors; we also found that the exchange rates analyzed have characteristics of diversification, due to the low autocorrelation between markets. The objective of this study was not to analyze abnormal profitability by investors without incurring additional risk.

Testing the Random Walk Hypothesis for Real Exchange Rates

2021 ◽  
pp. 304-322
Author(s):  
Rui Teixeira Dias ◽  
Pedro Pardal ◽  
Hortense Santos ◽  
Cristina Vasco
Keyword(s):  
Exchange Rates ◽  
Detrended Fluctuation Analysis ◽  
Real Exchange Rates ◽  
Weak Form ◽  
Fluctuation Analysis ◽  
Random Walk Hypothesis ◽  
Variance Ratios ◽  
Exchange Markets ◽  
Detrended Fluctuation ◽  
Over Time

This chapter aims to analyze the efficiency, in its weak form, in the exchange rates of Brazil vs. USA, Australia, Canada, Europe (Euro Zone), Switzerland, United Kingdom, and Japan from July 1, 2019 to September 20, 2020. The results suggest that exchange rates show signs of (in)efficiency, in their weak form (i.e., the values of the variance ratios are lower than the unit), which implies that returns are autocorrelated over time, and there is reversal to the average. In corroboration, the results of detrended fluctuation analysis (DFA) show persistence in yields (i.e., the existence of long memories), thus validating the results of the Lo and Mackinlay model that show autocorrelation between the series of yields. As a conclusion, the authors show that the assumption of market efficiency may be questioned, since the forecast of market movement may be improved if the lagged movements of the other markets are taken into account, allowing the occurrence of arbitrage operations in these foreign exchange markets.

Testing Random Walk Hypothesis in Turkish Foreign Exchange Market

2015 ◽  
pp. 51-63
Author(s):  
Levent Çıtak ◽  
Veli Akel ◽  
Murat Çetin
Keyword(s):  
Exchange Rate ◽  
Random Walk ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Ratio Test ◽  
Exchange Market ◽  
Developed Economies ◽  
Random Walk Hypothesis

This chapter revisits the empirical validity of the weak-form efficient market hypothesis for Turkish foreign exchange markets. The random-walk hypothesis in foreign-exchange rates market is one of the most researched areas, particularly in developed economies. This chapter applies ADF and PP unit root test, Lo and MacKinlay's (1988) conventional variance ratio test and Ljung-Box Q tests to examine the validity of the random-walk hypothesis in the Turkish foreign-exchange market. The chapter utilizes weekly nominal TRY/USD exchange rate for data from January 2000 to December 2013. The results provide evidence rejecting the random walk hypothesis for weekly nominal exchange rate series.

scholarly journals A Comparative Analysis of Weak and Semi-Strong Form Efficiency of Nigerian and South African Foreign Exchange Market

2021 ◽  
Vol 04 (07) ◽  
Author(s):  
Adetan, Taiwo Temitayo ◽  
Keyword(s):  
Exchange Rates ◽  
South African ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Weak Form ◽  
Strong Form ◽  
Exchange Market ◽  
Market Participants ◽  
Available Information ◽  
Weak Form Efficiency

Foreign exchange market is said to be efficient if all available information are reflected in its exchange rates. An efficient foreign exchange translates to absence of profitable and exploitable trends which means that it is impossible for market participants or private agents to outperform the market. This study investigated the weak and semi-strong form efficiency of Nigerian and South African foreign exchange market to determine the significance of past exchange rates in predicting the present rate which is the test of weak form efficiency and it examined the co-integration relationships between selected pairs of exchange rate to determine the semi-strong efficiency. The secondary data used in this study were sourced mainly from the Central Bank of Nigeria Statistical Bulletin, the South African Reserve Bank Bulletin and the oanda exchange rate websites. The data used were the inter-bank spot exchange rates of Naira and Rand to Swiss Franc, Euro, Pounds, Dollar and Yen for the period of January 2010 to December 2017. The Augmented Dickey Fuller (ADF) test and the Phillip Peron (PP) test were employed to determine the weak form efficiency while the Variance Decomposition, Granger Causality and Co-integration tests were used to determine the semi-strong form efficiency of both countries. The results of the study revealed that the Nigerian foreign exchange market is efficient in the weak and semi-strong form at 5% level of significance while the weak form efficiency of South African foreign exchange market revealed mixed results. The market is efficient in the weak form except for the case of Rand to Dollar and Rand to Yen which showed inefficiency. The market is equally efficient in semi-strong form. The study concluded that market participants cannot make exploitable profits by trading in both markets because all past and publicly available information are already incorporated in the prices of exchange rates. It was therefore recommended that the inter-bank market in both countries should be well monitored and managed by the regulatory authorities so as to promote the effective and efficient smooth functioning of the foreign exchange market as well as achieving a stable and realistic exchange rates.

scholarly journals Efficiency of the Black Foreign Exchange Market

2019 ◽  
Vol 11 (2) ◽  
pp. 165
Author(s):  
Ali Farhan Chaudhry ◽  
Mian Muhammd Hanif ◽  
Sameera Hassan ◽  
Muhammad Irfan Chani
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Weak Form ◽  
Exchange Rate Policy ◽  
Foreign Exchange Rate ◽  
Ratio Test ◽  
Exchange Market ◽  
Policy Makers

This empirical study is first of its nature to examine the weak-form of efficiency for unofficial foreign exchange market of Pakistan proxied by Japanese Yen (JPY/PKR), Swiss Franc (CHF/PKR), British Pound (GBP/PKR), and US Dollar (USD/PKR) exchange rates. For this we have employed Ljung Box Q-test, unit root tests including Dickey-Fuller (Dickey 1979), Augmented Dickey-Fuller (Dickey 1981) tests and Phillips and Perron (1988) test, Durbin Watson test, Runs-test, and Variance ratio test by using unofficial foreign exchange rate time series of Yen/PKR, CHF/PKR, GBP/PKR and USD/PKR from 1994M07 to 2001M06. Empirical results lead to the conclusion that the unofficial foreign exchange market of Pakistan is weak-form efficiency. The implications of this empirical research are of great importance for designing foreign exchange policy i.e. policy makers (be it accounting, export/import or public policy makers) are to consider fluctuations in unofficial foreign exchange rates while designing official foreign exchange rate policy of developing country like Pakistan. Further, policymakers can enhance the efficiency of official foreign exchange market by intervention subject to a widening of unofficial foreign exchange premium beyond a certain limit in developing countries like Pakistan.

scholarly journals Foreign Exchange Market Efficiency In Botswana

2017 ◽  
Vol 10 (1) ◽  
pp. 103-125 ◽  
Author(s):  
Gofaone Matebejana ◽  
Gaotlhobogwe Motlaleng ◽  
James Juana
Keyword(s):  
Random Walk ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Unit Root ◽  
Foreign Exchange Market ◽  
Weak Form ◽  
Strong Form ◽  
Unit Root Tests ◽  
Exchange Market ◽  
Weak Form Efficiency

Abstract The random walk behaviour of exchange rates in Botswana’s foreign exchange market is explored by employing unit root tests. The unit root tests employed include the ADF, PP and the KPSS. This paper uses monthly data for the period 2000:01 to 2015:12. The conclusive evidence based on the unit roots tests indicates that the behaviour of the Pula against the South African Rand, Japanese Yen and the American Dollar exchange rates is consistent with the random walk process and the weak form efficiency market hypothesis. However, the Pula against the British Pound is inconsistent with the weak form efficiency market hypothesis. These results compliment those from Namibia (Mabakeng and Sheefeni, 2014). Furthermore, there is no evidence of the semi-strong form level of efficiency as revealed by the cointegration results obtained. These results corroborates with those found by Wickremasinghe (2008) and Çiçek (2014) in which weak form was found to exist whilst the semi-strong form was found not to exist. This paper has filled an important gap as it is the first study to investigate the efficiency of the foreign exchange market in Botswana.

Testing Random Walk Hypothesis in Turkish Foreign Exchange Market

2016 ◽  
pp. 969-982
Author(s):  
Levent Çıtak ◽  
Veli Akel ◽  
Murat Çetin
Keyword(s):  
Exchange Rate ◽  
Random Walk ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Ratio Test ◽  
Exchange Market ◽  
Developed Economies ◽  
Random Walk Hypothesis

This chapter revisits the empirical validity of the weak-form efficient market hypothesis for Turkish foreign exchange markets. The random-walk hypothesis in foreign-exchange rates market is one of the most researched areas, particularly in developed economies. This chapter applies ADF and PP unit root test, Lo and MacKinlay's (1988) conventional variance ratio test and Ljung-Box Q tests to examine the validity of the random-walk hypothesis in the Turkish foreign-exchange market. The chapter utilizes weekly nominal TRY/USD exchange rate for data from January 2000 to December 2013. The results provide evidence rejecting the random walk hypothesis for weekly nominal exchange rate series.

Foreign Exchange Market Shocks in the Context of the Global Pandemic (COVID-19)

2021 ◽  
pp. 359-373
Author(s):  
Rui Teixeira Dias ◽  
Luísa Carvalho
Keyword(s):  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Weak Form ◽  
Foreign Exchange Markets ◽  
International Exchange ◽  
Fluctuation Analysis ◽  
Global Pandemic ◽  
Exchange Markets ◽  
Market Shocks ◽  
Abnormal Profits

This chapter analyzes the efficiency, in its weak form, in the international exchange markets from January 1st, 2019 to July 21st, 2020. The results show that the foreign exchange markets show very high levels of integration, which may jeopardize portfolio diversification as well as possible hedging operations. The detrended fluctuation analysis (DFA) shows that the EUR.GBP, GBP.USD, USD.REAL foreign exchange markets show some signs of (in)efficiency showing persistence in yields, while the EUR.JPY, EUR.USD, JPY.CHF, USD.CHF, USD.JPY markets show signs of anti persistence (i.e., the existence of short memories). The USD.BITCOIN, USD.CAD markets do not reject the random walk hypothesis, that is, they are in equilibrium. By way of conclusion, the authors show that the uncertainty of the 2020 pandemic crisis has affected the memory properties of the foreign exchange markets since some returns can be expected, creating opportunities for arbitrage and abnormal profits.

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