Efficiency testing revisited: a foreign exchange market with Bayesian learning

The paper re-examines the efficiency hypothesis in the foreign exchange market. The traditional efficiency-testing equations are reviewed and a more general model is developed that incorporates Bayesian revisions of devaluation expectations. A number of properties regarding the pattern of the coeffi...

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Bibliographic Details
Published inJournal of international money and finance Vol. 16; no. 3; pp. 367 - 385
Main Authors Christodoulakis, Nicos M., Kalyvitis, Sarantis C.
Format Journal Article
LanguageEnglish
Published Guildford Elsevier Ltd 01.06.1997
Elsevier
Butterworth Scientific Ltd
Elsevier Science Ltd
SeriesJournal of International Money and Finance
Subjects
Bayesian analysis
Economic models
Economics
Efficiency
Efficient markets
Foreign exchange
Foreign exchange markets
Hypotheses
Studies
Greece
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Summary:The paper re-examines the efficiency hypothesis in the foreign exchange market. The traditional efficiency-testing equations are reviewed and a more general model is developed that incorporates Bayesian revisions of devaluation expectations. A number of properties regarding the pattern of the coefficients in efficiency-testing equations are established. The empirical estimation of the model by using data from the emerging foreign exchange market in Greece confirms the properties of the theoretical model.
ISSN:0261-5606
1873-0639
DOI:10.1016/S0261-5606(97)00003-X