Efficiency of Foreign Exchange and Its Related Derivatives Market: Evidence From Korea

This study aims to test the efficiency of the Korean foreign exchange market and examine its determinants by employing several well-established methodologies based on current theoretical arguments on the forward rate unbiasedness hypothesis and covered interest rate parity. The empirical findings indicate that the foreign exchange market and its related derivatives markets were inefficient during the period 2006-2016, but have improved considerably after the 2008-2009 financial crisis. As the inefficiency prevailed for a long time, emphasis is on the presence of risk premia in the international financial market and the role of central bank intervention.