An examination of foreign exchange market efficiency hypothesis: a case study of iran

TLDR: In this paper, the authors examined the efficient market hypothesis in Iranian foreign exchange market during time period 21:03:2002-17:06:2010 by using Detrended Fluctuation Analysis (DFA) technique as well as unit root tests including Augmented Dickey Fuller (ADF) and Philips-Peron (PP).

Abstract: According to Efficient Market Hypothesis (EMH) prices completely reflect all available information. Under this condition, it is not possible to speculators to predict the future behavior of asset prices and to earn excess profits in a systematic manner. This study examines efficient market hypothesis in Iranian foreign exchange market during time period 21:03:2002-17:06:2010 by using Detrended Fluctuation Analysis (DFA) technique as well as unit root tests including Augmented Dickey Fuller (ADF) and Philips-Peron (PP). Results indicate that the market was weakly efficient during the selected time period. However, it seems that this efficiency is not due to informed behavior of traders but foreign exchange interventions under managed floating regime. In case that the government adopts floating exchange rate regime in the future, prominent acting of the informed speculators and making depth of the foreign exchange market may prevent dramatic foreign exchange market inefficiency and its consequences.