Journal of International Money and Finance · 1992 · 143 citations · 25 references
Social SciencesEconomicsEconometricsFinancial EconomicsInternational FinanceCointegration AnalysisExchange RatesForeign Exchange MarketsMarket EfficiencyCointegration In Exchange RatesCointegration In Financial MarketsExpectationsFinancial Market EfficiencyMarket Efficiency TestingMarket Efficiency TestsTest Statistics
The study tests the rational expectations and market efficiency hypotheses in foreign exchange markets using survey expectation data. The authors employ cointegration analysis on survey expectation data to test REH and MEH and to investigate why MEH fails. Results indicate exchange rates follow a random walk, supporting REH but not MEH. JEL classification: F31, G14.
This paper tests the rational expectations hypothesis (REH) and the market efficiency hypothesis (MEH) in the foreign exchange markets, using survey data on expectations. Our results show that the spot exchange rates, expected exchange rates, and the forward rates all follow a random walk process. Hence, the cointegration theory is employed to test the REH and MEH. All the test statistics support the REH but fail to support the MEH. We use survey data on expectations to identify the causes behind this failure of the MEH. (JEL F31, G14).
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