Testing the Random Walk Hypothesis for Real Exchange Rates

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.

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Source Of The Multifractality In Exchange Markets: Multifractal Detrended Fluctuations Analysis

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v12i4.8866 ◽

2014 ◽

Vol 12 (4) ◽

pp. 371

Author(s):

Samet Gunay

Keyword(s):

Probability Density Function ◽

Probability Density ◽

Long Memory ◽

Detrended Fluctuation Analysis ◽

Autoregressive Process ◽

Fluctuation Analysis ◽

Fat Tails ◽

Multifractal Detrended Fluctuation Analysis ◽

Exchange Markets ◽

Detrended Fluctuation

In this study, we analyzed the multifractality and the source of multifractality of the returns of GBP/USD, EUR/USD, USD/JPY and USD/CHF currencies. In the examination of multifractality we performed the Multifractal Detrended Fluctuation Analysis (MF-DFA). Also, we used shuffled and surrogated data that was derived from the Statically Transformed Autoregressive Process (STAP) method to determine the source of multifractality. According to the results, GBP/USD returns have monofractal features, whereas EUR/USD, USD/JPY and USD/CHF returns have multifractal behaviours. The tests concerning the source of multifractality indicated that the reason of multifractality for EUR/USD and USD/JPY returns is fat-tails of the probability density function of returns, whereas the reason of multifractality of USD/CHF returns are both long memory and fat tails. Also we have seen that there is an ambiguous relationship between the liquidity of the currency market and multifractality.

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

6th LIMEN Conference Proceedings (part of LIMEN conference collection) ◽

10.31410/limen.2020.39 ◽

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.

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

10.31410/eman.2021.1 ◽

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.

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Efficiency of Asean-5 Markets: An Detrended Fluctuation Analysis

Mednarodno inovativno poslovanje = Journal of Innovative Business and Management ◽

10.32015/jibm.2020.12.2.13-19 ◽

2020 ◽

Vol 12 (2) ◽

pp. 13-19

Author(s):

Rui Dias ◽

Paula Heliodoro ◽

Paulo Alexandre

Keyword(s):

Random Walk ◽

Financial Markets ◽

Stock Prices ◽

Detrended Fluctuation Analysis ◽

Abnormal Returns ◽

Weak Form ◽

The Philippines ◽

Fluctuation Analysis ◽

Chinese Market ◽

Detrended Fluctuation

This study intends to analyse efficiency, in its weak form, in the financial markets of Indonesia, Malaysia, Philippines, Singapore, Thailand (ASEAN-5), and China, during the global pandemic (Covid-19). Different approaches have been undertaken to carry out this analysis in order to determine whether: (i) ASEAN-5 financial markets and China are efficient, in their weak form, during the analysis period? The results indicate that the random walk hypothesis is rejected in all markets. The values of the variance ratios are, in all cases, lower than the unit, which implies that the returns are autocorrelated over time and, there is a reversion to the average, in all indices. In corroboration, the exponents Detrended Fluctuation Analysis (DFA), indicate significant long memories with a larger incidence in the Philippines and Singapore markets, however the Chinese market evidences anti persistence. These results demonstrate that stock prices do not completely reflect the available information and that stock prices movements are not i.i.d. This has implications for investors, as some returns can be expected, creating opportunities for arbitrage and abnormal returns, contrary to the assumptions of random walk and information efficiency. These conclusions also allow market regulators to implement measures to ensure better information in these regional markets.

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