Market efficiency in foreign exchange market

Namhoon Lee, Wonseok Choi, Yuntaek Pae

Research output: Contribution to journalArticlepeer-review

Abstract

The study examines foreign exchange market overreaction for various combinations of formation and testing periods over 30 years. First, we find that reversal is significant for longer test periods and longer formation periods. Second, we find no evidence of persistent momentum or reversal during the entire sample period. Thus, the results of overreaction studies should be sensitive to the sample period. Third, we observe losers outperform most of the formation and test periods combinations except for the short-term when spot rates are used to construct portfolios. We observe the evidence of overreaction becomes stronger with the longer formation and test period.

Original languageEnglish
Article number109931
JournalEconomics Letters
Volume205
DOIs
StatePublished - Aug 2021

Keywords

  • Efficient market hypothesis
  • Foreign exchange rate
  • Momentum
  • Overreaction
  • Reversal

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