Crowder, W. J. (1994), Foreign exchange market efficiency and common stochastic trends, Journal of International Money and Finance, 13, 551-564.  Home/Search   Document Not in Database   Summary   Related Articles   Check

....risk premium, t,k rp , in (5) depend upon the stochastic properties of the forward premium, t f t S . The integration order of the forward risk premium has important implications for the weak form efficiency hypothesis in the foreign exchange market. 2 Alexander and Johnson (1992) Crowder (1994), Lopez (1996) and Baillie and Bollerslev (1989, 1994a) find evidence of cointegration in systems of spot exchange rates. 3 According to the Granger representation theorem (Engle and Granger (1987) cointegration implies the existence of Granger causal orderings among cointegrated foreign ....

....error) which is the stationary linear combination of the system s spot exchange rates. Such predictability might profitably be exploited and thus would constitute a violation of the weak form market efficiency hypothesis, thereby linking the concepts of cointegration and market efficiency. 4 Crowder (1994) argues that the predictability of the cointegrated currency spot rates derived from the error correction term may not be a violation of foreign exchange market efficiency if the error correction term serves as a proxy for a currency risk premium. 5 Predictability of spot exchange rates would ....

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Crowder, W. J. (1994), Foreign exchange market efficiency and common stochastic trends, Journal of International Money and Finance, 13, 551-564.

....series must be of the same integration order as the forecast error series, that is, it must be a stationary process (given the obtained evidence of stationarity for t he forecast error series) There is a debate in the literature regarding the integration order of the forward premium series. Crowder (1994) finds t s t f to be a unit root process whereas Hai et al. 1997) reach the opposite conclusion. Baillie and Bollerslev (1994) find t s t f to be a fractionally integrated process. We apply the JLR test to our panel of forward premium series for the eight currencies and document strong ....

Crowder, W. J. (1994), Foreign exchange market efficiency and common stochastic trends, Journal of International Money and Finance, 13, 551-564.

....ceases to be efficient, even in the narrow technical sense. 18 The literature on foreign exchange market efficiency is endless. I will just refer to a small selection, covering a range of views and approaches : Fama [1984] Hakkio and Rush [1989] MacDonald and Taylor [1992] Dutt [1994] Crowder [1994], Taylor [1995] Dutt and Ghosh [1995] Zietz [1995] Lajaunie, McManis and Naka [1996] 32 sense (trading efficiency) but inefficient in every other sense, and nominal price and cost rigidities in the markets for real goods and services that underpins this approach to optimal currency areas. ....

Crowder, William J. [1994], "Foreign Exchange Market Efficiency and Common Stochastic Trends", Journal of International Money and Finance, 13(5), October, pp. 551-64.

....in a surprising way. They show that, according to some tests, some excess returns appear to contain a unit root. Of the four papers of which we are aware, three provide evidence from foreign exchange markets; Evans and Lewis (1993) herinafter EL93) Evans and Lewis (1995) herinafter EL95) and Crowder (1994). All three begin with the premise that the log of 1 the spot exchange rate is I(1) Therefore, if it is not cointegrated with the log of the k f t x k t# s t #k # f k x t 112 MARIE JOSE GODBOUT AND SIMON VAN NORDEN period forward rate , or, more specifically, if its cointegrating ....

....in realistic sample sizes, even when they are truly stationary in large enough samples. Their preferred interpretation of the evidence they present is that there are highly persistent trends in excess returns that are consistent with regimeswitching behavior in exchange rates. On the other hand, Crowder (1994) interprets the results of unit root and cointegration tests more narrowly. He extends Baillie and Bollerslev s (1989) work on the apparent cointegration of nominal spot exchange rates, noting that such cointegration implies that changes in some foreign exchange rates must be predictable. Such ....

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Crowder, W. J. (1994). "Foreign Exchange Market Efficiency and Common Stochastic Trends," Journal of International Money and Finance, 13, 551-564.

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