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Efficiency and News in Exchange Rate Market. The Euro/Dollar Case

01 Jan 2001-

AbstractThe aim of the paper is twofold: the first one is to examine the theoretical points that constitute literature on exchange rate market efficiency. We give a quick look to the long run, in which high or low efficiency results from the adjustment velocity of prices and production in goods market. We then go to examine literature conclusions about the short run. The second aim is to test the efficiency for the US dollar against the Euro foreign exchange market with anews' exchange rate model using daily data over a period of 19 months. In the model we use, as proxies of 'news', variables generated by the residuals from a VAR model. Our results are consistent with the hypothesis that the forward exchange rate is not an unbiased predictor of the future spot rate. That is, we reject the hypothesis of efficiency and we show the importance of the 'news' in determining short-run movements in the exchange rate markets. The general conclusion we reach is that the euro dollar exchange rate market, from its birth to august 2000, is not efficient because expectations could not be rational, i.e. operators cannot predict risks coming from stock exchange and from uncertainty on future values of economic variables. more

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31 Oct 2014
Abstract: Prime Journal of Business Administration and Management encompasses all areas of Business Administration and Management such as general management, business law, public responsibility and ethics, marketing theory and applications, business finance and investment, general business research, business and economics education, production/operations management, organizational behavior and theory, strategic management policy, social issues and public policy, management organization, statistics and econometrics, personnel and industrial relations, technology and innovation, case studies, and management information systems.

7 citations

01 Jan 2012
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.

2 citations

20 Jan 2013
Abstract: بر اساس فرضیه بازار کارا، قیمت‌ها به‌طور کامل اطلاعات در دسترس را منعکس می‌کنند. در این شرایط، برای سفته بازان امکان پیش بینی رفتار آتی قیمت دارایی و کسب سودهای اضافی به صورت سیستماتیک وجود ندارد. مطالعه حاضر فرضیه بازار کارا در بازار ارز ایران را طی دوره زمانی 1/1/1381 تا 27/3/1389 با استفاده از تکنیک آنالیز نوسانات روند زدایی شده (DFA) و آزمون‌های ریشه واحد دیکی فولر تعمیم یافته (ADF) و فیلیپس- پرون (PP) آزمون می‌کند. نتایج نشان می‌دهد که بازار ارز ایران در دوره منتخب دارای کارایی شکل ضعیف است. به هر حال، به نظر می‌رسد کارایی بازار ارز ایران بیش از آن که زاییده رفتار آگاهانه معامله گران باشد ناشی از مداخلات ارزی تحت نظام ارزی شناور مدیریت شده است. در صورتی که دولت بخواهد در آینده به اتخاذ نظام ارزی شناور روی آورد حضور غالب سفته بازان آگاه و عمق بخشی به بازار ارز می‌تواند جلوی بروز ناکارایی‌های شدید بازار ارز و پیامدهای ناشی از آن را بگیرد.

Posted Content
Abstract: This paper attempts to explain the importance of the role of the speculators in determining the 1992 ERM crisis, and the effects that the policy of maintaining external parity had on internal growth. We focus on a different way through which expectations are formed about the macroeconomic fundamentals independently of the behaviour of the monetary policy. In the present model, agents’ rational beliefs do not emerge from arbitrary circumstances but only when the value of the exchange rate, kept under control by the central bank, did not correspond to the expected value and to the current wide-spread beliefs in the market.

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Journal ArticleDOI
Abstract: Efficient Capital Markets: A Review of Theory and Empirical Work Author(s): Eugene F. Fama Source: The Journal of Finance, Vol. 25, No. 2, Papers and Proceedings of the Twenty-Eighth Annual Meeting of the American Finance Association New York, N.Y. December, 28-30, 1969 (May, 1970), pp. 383-417 Published by: Blackwell Publishing for the American Finance Association Stable URL: Accessed: 30/03/2010 21:28

17,101 citations

Journal ArticleDOI
Abstract: Existing strategies for econometric analysis related to macroeconomics are subject to a number of serious objections, some recently formulated, some old. These objections are summarized in this paper, and it is argued that taken together they make it unlikely that macroeconomic models are in fact over identified, as the existing statistical theory usually assumes. The implications of this conclusion are explored, and an example of econometric work in a non-standard style, taking account of the objections to the standard style, is presented. THE STUDY OF THE BUSINESS cycle, fluctuations in aggregate measures of economic activity and prices over periods from one to ten years or so, constitutes or motivates a large part of what we call macroeconomics. Most economists would agree that there are many macroeconomic variables whose cyclical fluctuations are of interest, and would agree further that fluctuations in these series are interrelated. It would seem to follow almost tautologically that statistical models involving large numbers of macroeconomic variables ought to be the arena within which macroeconomic theories confront reality and thereby each other. Instead, though large-scale statistical macroeconomic models exist and are by some criteria successful, a deep vein of skepticism about the value of these models runs through that part of the economics profession not actively engaged in constructing or using them. It is still rare for empirical research in macroeconomics to be planned and executed within the framework of one of the large models. In this lecture I intend to discuss some aspects of this situation, attempting both to offer some explanations and to suggest some means for improvement. I will argue that the style in which their builders construct claims for a connection between these models and reality-the style in which "identification" is achieved for these models-is inappropriate, to the point at which claims for identification in these models cannot be taken seriously. This is a venerable assertion; and there are some good old reasons for believing it;2 but there are also some reasons which have been more recently put forth. After developing the conclusion that the identification claimed for existing large-scale models is incredible, I will discuss what ought to be done in consequence. The line of argument is: large-scale models do perform useful forecasting and policy-analysis functions despite their incredible identification; the restrictions imposed in the usual style of identification are neither essential to constructing a model which can perform these functions nor innocuous; an alternative style of identification is available and practical. Finally we will look at some empirical work based on an alternative style of macroeconometrics. A six-variable dynamic system is estimated without using 1 Research for this paper was supported by NSF Grant Soc-76-02482. Lars Hansen executed the computations. The paper has benefited from comments by many people, especially Thomas J. Sargent

10,387 citations

Journal ArticleDOI
Abstract: Even if there is an agreed-upon, fixed social objective function and policymakers know the timing and magnitude of the effects of their actions, discretionary policy, namely, the selection of that decision which is best, given the current situation and a correct evaluation of the end-of-period position, does not result in the social objective function being maximized. The reason for this apparent paradox is that economic planning is not a game against nature but, rather, a game against rational economic agents. We conclude that there is no way control theory can be made applicable to economic planning when expectations are rational.

7,400 citations

"Efficiency and News in Exchange Rat..." refers background in this paper

  • ...Conclusion b) is very improbable because the theoretical paradigm the European Central Bank relies on (Kydland and Prescott 1977, Barro and Gordon 1983 etc.) In conclusion expectations are not rational and monetary variables are able to offset real ones....


Journal ArticleDOI
Abstract: The paper develops a theory of exchange rate movements under perfect capital mobility, a slow adjustment of goods markets relative to asset markets, and consistent expectations. The perfect foresight path is derived and it is shown that along that path a monetary expansion causes the exchange rate to depreciate. An initial overshooting of exchange rates is shown to derive from the differential adjustment speed of markets. The magnitude and persistence of the overshooting is developed in terms of the structural parameters of the model. To the extent that output responds to a monetary expansion in the short run, this acts as a dampening effect on exchange depreciation and may, in fact, lead to an increase in interest rates.

4,634 citations