Testing the Martingale Hypothesis in Deutsche Mark Futures with Models Specifying the Form of Heteroskedasticity
Journal of Applied Econometrics, Vol. 3, No. 3, p. 187, 1988
17 Pages Posted: 29 Feb 2012
Date Written: 1986
Abstract
We examine the form of heteroskedasticity in Deutsche Mark futures price data and compare different specifications of the particular way that the variance is changing over time. The martingale hypothesis is tested with daily and weekly rates of change of futures prices for the Deutsche Mark and some evidence is found against this hypothesis in analyses of daily data from 1981 to 1985. This rejection of the martingale hypothesis may be attributed to trading day effects in foreign currency prices and the resulting day-of-the-week patterns in futures prices. When the martingale hypothesis is tested with weekly data the null hypothesis is retained.
Keywords: heteroskedasticity, foreign currency futures, trading-day effects, day-of-the-week patterns, martingale
JEL Classification: F31, G13, C32
Suggested Citation: Suggested Citation