Foreign exchange market efficiency tests: Implications of recent empirical findings

Abstract The recent empirical literature on the efficiency of the foreign exchange market has been characterized by strikingly contradictory conclusions drawn from similar empirical evidence. These contradictions result because (1) different maintained hypotheses are held and (2) different criteria ( e.g. , micro- versus macroeconomic) are used to judge the evidence. In this survey we organize the empirical literature under several headings: the presence of risk premiums, empirical regularities in regression tests, profitable trading rules, and advanced econometric techniques. In integrating this material, we consider the implications of the current evidence for investors, forecasters, policy-makers, and theorists.

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