A Cointegration Test for Turkish Foreign Exchange Market Efficiency
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Keywords

Market efficiency, Forward rate unbiasedness, Spot exchange rates, Forward exchange rates, Financial markets, Turkey.

How to Cite

Çiçek, M. . (2014). A Cointegration Test for Turkish Foreign Exchange Market Efficiency. Asian Economic and Financial Review, 4(4), 451–471. Retrieved from https://archive.aessweb.com/index.php/5002/article/view/1171

Abstract

This study examines the within-country market efficiency of the Turkish foreign exchange markets on the basis of the forward rate unbiasedness hypothesis, in case of the Turkish lira/US dollar and the Turkish lira/Euro for the period February 5, 2005 through July 26, 2013 by Johansen cointegration method. Unit root test results support the market efficiency in its weak-form. However, the existence of cointegration between the forward rates and its corresponding future spot rates with a unitary cointegrating vector and there exists no systematic expectation errors provide evidence for forward rate unbiasedness hypothesis and thus against market efficiency in semi-strong form. In the Turkish lira/US dollar foreign exchange market, the speed of adjustment towards long run equilibrium is a bit faster, and also the forward rates explain a bit more proportion of the movements of the spot rates in comparison with the Turkish lira/Euro market.

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