Cointegration in the Foreign Exchange Market and Market Efficiency since the Introduction of the Euro: Evidence based on bivariate Cointegration Analyses
نویسنده
چکیده
The aim of this annual workshop is to offer a forum for young researchers from the field of International Economics to present and to discuss their current topics of research with other experts. The workshop also provides the opportunity to gain an overview of recent developments, problems and methodological approaches in this field. The aim of this paper is to investigate the market efficiency on the foreign exchange market since the introduction of the Euro by applying the cointegration analysis to exchange rates. The introduction of the Euro has changed the structure of the global foreign exchange market to the extent that the second most important currency in the world with the highest credibility in the foreign exchange market, namely the Deutsche Mark, has been assimilated into the Euro. In order to evaluate if the introduction of a new currency has resulted in inefficient markets, a bivariate cointegration analysis should be applied to the seven most important exchange rates. The empirical analysis predominantly draws on the Johansen (1988, 1991) approach and the Gregory-Hansen (1996) approach whereas the latter takes endogenous structural breaks into account. We show that the foreign exchange market is broadly consistent with the market efficiency hypothesis. A very important result is that we can find a long-run relationship between the exchange rate pairs EUR/USD and GBP/USD whereas the no-arbitrage condition is satisfied. Since the EUR/USD exchange rate is weakly exogenous the GBP/USD exchange rate takes the burden of adjustment to the long-run equilibrium.
منابع مشابه
Bivariate cointegration of major exchange rates, cross-market efficiency and the introduction of the Euro
The aim of this paper is to investigate whether the Euro–US dollar exchange rate cointegrates with other major exchange rates since the introduction of the Euro. In order to evaluatewhether the introduction of a new currency, which has commonly replaced more and less established currencies, has generated common stochastic trends which are possibly linked to cross-inefficient markets, the result...
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