Efficiency of Foreign Exchange Markets: Evidence from South Asian Countries

Abstract

This paper examines the validity of the efficient market hypothesis on the foreign exchange markets of South Asian Countries during the period 1999 to 2004. The descriptive statistics for exchange rates show frequency distributions are not normal. Though the return series on exchange rates are stationary but the ACFs are highly significant at various lags and Ljung-Box (Q) test rejects the joint null hypothesis of zero auto-correlations. The non-parametric Run-test also indicates towards the rejection of the random walk model. The K-S Z-test indicates that the frequency distribution of the underlying series does not tit normal distribution. The BDS-test shows the evidence of non-linear relationship in the return series. Therefore, the South Asian foreign exchange markets in our sample over the period of study are not efficient in weak form.