• ARCH effects and cointegration: Is the foreign exchange market efficient?

      Apergis, Nicholas; Alexakis, Panagiotis; University of Macedonia; University of the Aegean (Elsevier, 1996-05)
      Extensive empirical work has produced mixed evidence regarding the validity of the unbiased efficient expectations hypothesis in the foreign exchange market. Empirical analysis in this paper, via cointegration techniques, produces the same inconclusive results for three currency markets, namely, the FFR/$US, the DM/$US and the Yen/$US foreign exchange market. However, when modeling conditional heteroskedasticity of exchange rates, through autoregressive conditional heteroskedasticity (ARCH) models, the results are fairly conclusive; the presence of the efficient foreign exchange market hypothesis is found in all these three currency markets.