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

TL;DR: In this article, the authors examine the theoretical points that constitute literature on exchange rate market efficiency and show the importance of the news in determining short-run movements in the exchange rate markets.
Abstract: The 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.

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Citations
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31 Oct 2014
TL;DR: The Prime Journal of Business Administration and Management (PMBAM) as discussed by the authors is a journal that covers all areas of BAM 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.
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
TL;DR: 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.

2 citations

DOI
20 Jan 2013
TL;DR: In this article, the authors present a list of the most important factors that influence the performance of a user's interaction with a service provider and the quality of service provided by the service provider.
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
TL;DR: In this article, the authors explain the role of speculators in determining the 1992 ERM crisis and the effects that the policy of maintaining external parity had on internal growth, focusing on a different way through which expectations are formed about the macroeconomic fundamentals independently of the behaviour of the monetary policy.
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.
References
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Journal ArticleDOI
TL;DR: The authors analyzes empirically the recent Asian financial crisis using high frequency data of exchange rates and stock indices of the Philippines and Thailand using standard time-series techniques, and confirms that there is evidence that developments in some sectoral indices, including those of banking and financial sectors,seem to have caused upward pressure on exchange rates.
Abstract: This paper analyzes empirically the recent Asian financial crisis using high frequency data of exchange rates and stock indices of the Philippines and Thailand. Utilizing standard time-series techniques, this study confirms that there is evidence that developments in some sectoral indices—including those of banking and financial sectors—seem to have caused upward pressure on exchange rates. A correlation between some of these variables is also found to be strong across countries in the crisis period, thereby confirming the importance of the linkages between financial markets as a transmission channel of the Thai crisis to the Philippines.

23 citations

Journal ArticleDOI
TL;DR: The authors examined empirically the relationship between exchange rate returns, "news" and risk premia, and found that an unexpected rise in the interest rate differential tends to strengthen the domestic exchange rate.

9 citations

Book
01 Jan 1989
TL;DR: In this paper, the authors provide an integrated approach to recent developments in the understanding of foreign exchange markets by charting the institutional background and looking at the recent history of movements in some of the major exchange rates.
Abstract: The flotation of exchange rates in the early 1970s saw a significant increase in the importance of foreign exchange markets and in the interest shown in them. Apart from the consequent institutional changes, this period also witnessed a revolution in macroeconomic analysis and finance theory based on the concept of rational expectations. This book provides an integrated approach to recent developments in the understanding of foreign exchange markets. It begins by charting the institutional background and looks at the recent history of movements in some of the major exchange rates. The theoretical sections focus on the economic and finance theory of the asset market approach, the macroeconomic models developed from this approach, and on interest rate parity theory. The empirical chapters draw on the authors' own research from a high quality set of exchange rate and interest rate data. The statistical properties of exchange rates are analysed; the relationship between spot and forward rates is examined; and the modelling and impact of new information on the forward and spot relationship is considered. The final chapter is devoted to the estimation and testing of exchange rate models.

7 citations