Foreign Exchange Market Efficiency Under Recent Crises: Asia-Pacific Focus
26 Pages Posted: 22 Aug 2011 Last revised: 8 Aug 2012
Date Written: August 21, 2011
The Asia-Pacific region’s currency markets are generally efficient within-country when tested using the Johansen (1991, 1995) cointegration technique whereas market efficiency fails to hold when tested using Fama’s (1984) conventional regression. Using the Pilbeam and Olmo (2011) model, we reconcile these conflicting findings. The Pilbeam and Olmo (2011) model confirms within-country market efficiency. It further confirms that free-float currency markets are more resilient than managed-float currency markets among 12 Asia-Pacific economies. From the across-country perspective, the foreign exchange markets are mostly efficient and the results show that the 1997–1998 Asian financial crisis was a more disturbing event than the 2008–2009 global financial crisis in the region.
Keywords: Foreign exchange market efficiency, Forward unbiasedness hypothesis, Cointegration, Asia-Pacific Currencies
JEL Classification: G14, G15, F31
Suggested Citation: Suggested Citation