Martingale Property of Exchange Rates and Central Bank Interventions

33 Pages Posted: 23 Aug 2001

Date Written: June 2001


This paper uses the variance-ratio-based multiple comparison test and Richardson-Smith's Wald test procedures to test for martingale property of daily exchange rates of seven major currencies vis-a-vis US dollar. To allow for the possibility that exchange rates are not governed by a single process throughout the float, we calculate and plot the test statistics for fixed-length moving subsample windows rather than applying the tests to the full sample. The results show that exchange rates do not always follow the martingale process. The results show that during the times of coordinated central bank intervention exchange rates deviate from martingale property.

Keywords: Exchange rates, Martingale, Variance ratio test, FX market intervention

JEL Classification: F31, G15

Suggested Citation

Yilmaz, Kamil, Martingale Property of Exchange Rates and Central Bank Interventions (June 2001). Available at SSRN: or

Kamil Yilmaz (Contact Author)

Koc University ( email )

Rumeli Feneri Yolu
Istanbul, 34450
+90 212 338 1458 (Phone)
+90 212 338 1653 (Fax)

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