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Efficiency Of Foreign Exchange Markets: A Developing Country Perspective

Author

Listed:
  • Guneratne Banda Wickremasinghe

    (Monash University)

Abstract
This study tests weak and semi-strong form efficiency of the foreign exchange market in Sri Lanka using six bilateral foreign exchange rates during the recent float. Weak-form efficiency is examined using unit root tests while semi-strong form efficiency is tested using co- integration and Granger causality tests and variance decomposition analysis. Results indicate that the Sri Lankan foreign exchange market is consistent with the weak -form of the Efficient Market Hypothesis. However, the results provide evidence against the semi - strong version of the Efficient Market hypothesis. These results have important implications for government policy makers and participants in the foreign exchange market of Sri Lanka.

Suggested Citation

  • Guneratne Banda Wickremasinghe, 2004. "Efficiency Of Foreign Exchange Markets: A Developing Country Perspective," International Finance 0406004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpif:0406004
    Note: Type of Document - pdf; pages: 24
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0406/0406004.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Giannellis, Nikolaos & Papadopoulos, Athanasios P., 2009. "Testing for efficiency in selected developing foreign exchange markets: An equilibrium-based approach," Economic Modelling, Elsevier, vol. 26(1), pages 155-166, January.
    2. Andrew Phiri, 2015. "Efficient Market Hypothesis in South Africa: Evidence from Linear and Nonlinear Unit Root Tests," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 13(4 (Winter), pages 369-387.
    3. Mahamuda Firoj & Sharmina Khanom, 2018. "Efficient Market Hypothesis: Foreign Exchange Market of Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 8(6), pages 99-103.
    4. Van Heerden, Dorathea & Rodrigues, Jose & Hockly, Dale & Lambert, Bongani & Taljard, Tjaart & Phiri, Andrew, 2013. "Efficient Market Hypothesis in South Africa: Evidence from a threshold autoregressive (TAR) model," MPRA Paper 50544, University Library of Munich, Germany.
    5. Tran Mong Uyen Ngan, 2016. "Relationship between Foreign Exchange Rate and Stock Price of Commercial Joint Stock Banks: Evidence from Vietnam," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(7), pages 193-193, July.
    6. Felicia Ramona Birau, 2012. "Econometric Approach Of Heteroskedasticity On Financial Time Series In A General Framework," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 74-77, December.
    7. Gofaone Matebejana & Gaotlhobogwe Motlaleng & James Juana, 2017. "Foreign Exchange Market Efficiency In Botswana," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 19, pages 55-74, June.
    8. Rizwana Bashir & Rabia Shakir & Badar Ashfaq & Atif Hassan, 2014. "The Efficiency of Foreign Exchange Markets in Pakistan: An Empirical Analysis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(1), pages 133-149, Jan-June.
    9. Guneratne B Wickremasinghe & Jae H Kim, 2008. "Weak-Form Efficiency of Foreign Exchange Markets of Developing Economies," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 7(2), pages 169-196, August.
    10. Adeyeye Patrick Olufemi & Aluko Olufemi Adewale & Migiro Stephen Oseko, 2017. "Efficiency of Foreign Exchange Markets in Sub-Saharan Africa in the Presence of Structural Break: A Linear and Non-Linear Testing Approach," Journal of Economics and Behavioral Studies, AMH International, vol. 9(4), pages 122-131.
    11. repec:pid:wpaper:2012:82 is not listed on IDEAS

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    More about this item

    Keywords

    Efficient market hypothesis; Sri Lanka; foreign exchange market; Japanese yen; Variance decomposition;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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