Efficiency and News in Exchange Rate Market. The Euro/Dollar Case
01 Jan 2001-
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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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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TL;DR: The authors compared the performance of various structural and time series exchange rate models, and found that a random walk model performs as well as any estimated model at one to twelve month horizons for the dollar/pound, dollar/mark, dollar /yen and trade-weighted dollar exchange rates.
3,621 citations
Posted Content•
TL;DR: In this article, the authors develop an example of a reputational equilibrium where the out-comes turn out to be weighted averages of those from discretion and those from the ideal rule.
Abstract: In a discretionary regime the monetary authority can print more money and create more inflation than people expect. But, although these inflation surprises can have some benefits, they cannot arise systematically in equilibrium when people understand the policymaker's incentives and form their expectations accordingly. Because the policymaker has the power to create inflation shocks ex post, the equilibrium growth rates of money and prices turn out to be higher than otherwise. Therefore, enforced commitments (rules) for monetary behavior can improve matters. Given the repeated interaction between the policymaker and the private agents, it is possible that reputational forces can substitute for formal rules.Here, we develop an example of a reputational equilibrium where the out-comes turn out to be weighted averages of those from discretion and those from the ideal rule. In particular, the rates of inflation and monetary growth look more like those under discretion when the discount rate is high.
3,265 citations
TL;DR: In this paper, it is shown that simple least squares regression consistently estimates a unit root under very general conditions in spite of the presence of autocorrelated errors. But, the results of this paper are restricted to the unit root case.
Abstract: This paper studies the random walk, in a general time series setting that allows for weakly dependent and heterogeneously distributed innovations. It is shown that simple least squares regression consistently estimates a unit root under very general conditions in spite of the presence of autocorrelated errors. The limiting distribution of the standardized estimator and the associated regression t statistic are found using functional central limit theory. New tests of the random walk hypothesis are developed which permit a wide class of dependent and heterogeneous innovation sequences. A new limiting distribution theory is constructed based on the concept of continuous data recording. This theory, together with an asymptotic expansion that is developed in the paper for the unit root case, explain many of the interesting experimental results recently reported in Evans and Savin (1981, 1984).
2,951 citations
TL;DR: In this paper, the authors develop an example of a reputational equilibrium where the outcomes turn out to be weighted averages of those from discretion and those from the ideal rule, when the discount rate is high.
2,935 citations
TL;DR: In this paper, the authors find that most of the variation in forward rates is variation in premium, and the premium and expected future spot rate components of forward rates are negatively correlated, and they conclude that the forward market is not efficient or rational.
2,217 citations
"Efficiency and News in Exchange Rat..." refers background in this paper
...2 Hakkio, 1981; MacDonald 1983, Hodrick and Srivastava, 1984; Domowitz and Hakkio, 1984; Fama, 1984; Taylor, 1988; Corbae et al., 1992, 3 Frenkel 1980, Longworth 1981, Hakkio and Rush, 1989; Baillie and Bollerslev, 1989; Lai and Lai, 1991; Masih and Masih, 1995 To estimate the presence of news we…...
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