Foreign exchange market efficiency revisited

Article Abstract:

The unit-root null hypothesis was rejected for the time-series of the forward premium and interest differential. Rejection of the unit-root validates the hypothesis of foreign exchange market efficiency. Utilization of the panel unit-root test of Im et al (1995) revealed that interest differentials are stationary. The stationary characteristic of interest differentials can be attributed to the test's strength, which is greater than other conventional unit-root tests.

Efficient market theory

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Integration, cointegration and the forecast consistency of structural exchange rate models

Article Abstract:

An alternative set of criteria was proposed for assessing forecast rationality. The proposed criteria involves consistency that entails integration of forecast and actual series with cointegrating vector. Such criteria are found to be highly effective in evaluating forecasts based on structural models that incorporate macroeconomic data. Utilization of a Horvath-Watson procedure which imposes a unitary coefficient restriction revealed fewer cases of consistency.

Economic aspects, Forecasting

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A note on cointegration and international capital market efficiency: a reply

Article Abstract:

The article written by Charles Engel regarding the independence of the cointegration aspects of spot foreign exchange rates from the efficiency of capital markets is inaccurate. His arguments are defective in two instances. First, the use of the purchasing power parity (PPP) as a solid empirical foundation is inappropriate due to it's inherent weaknesses. Moreover, Engel's model is not an error correction model as seen in cointegrated systems.

Analysis, Prices and rates, Foreign exchange rates, Capital market, Capital markets

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