University of Oulu

The efficiency of foreign exchange markets in emerging economies : evidence in BRICS countries

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Author: Mukherjee, Shreya1
Organizations: 1University of Oulu, Oulu Business School, Department of Finance, Finance
Format: ebook
Version: published version
Access: open
Online Access: PDF Full Text (PDF, 2.2 MB)
Pages: 72
Persistent link:
Language: English
Published: Oulu : S. Mukherjee, 2018
Publish Date: 2018-11-28
Thesis type: Master's thesis
Tutor: Conlin, Andrew
Reviewer: Perttunen, Jukka
Conlin, Andrew
This thesis investigates whether the foreign exchange markets are efficient in the emerging economies. The emerging economies include Brazil, China, India, Russia, and South Africa. The motivation behind this research is to provide an insight to the investor whether it is a worthwhile decision to invest in the foreign exchange markets. In order to prove the efficiency of the foreign exchange markets, three hypotheses were tested — the uncovered interest rate parity (UIP) condition, the unbiased forward rate hypothesis (UFH)/rational expectations hypothesis (REH) and the efficient market hypothesis (EMH). The examination is performed using various econometric tools. These include the OLS, VAR, VECM and the Johansen cointegration test. The time-series data used for this research was obtained from the Thompson Reuters Datastream, the website of Federal Reserve Bank of St. Louis (FRED) and the website of the Organization for Economic Co-operation and Development (OECD). The time period for this research was from 31st March 2004 to 30th April 2018. We find that the UIP condition does not hold for any of the BRICS countries. The forward rates are not the unbiased predictors of the spot rate for any of the BRICS countries. The spot and forward rates were cointegrated for the Brazilian real, the Chinese yuan and the Russian ruble. Whereas, the spot and forward rates were not cointegrated for the Indian rupee and the South African rand. The rate of depreciation and the forward rate premium for India and South Africa are cointegrated but the same for the Chinese yuan are not cointegrated.
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Copyright information: © Shreya Mukherjee, 2018. This publication is copyrighted. You may download, display and print it for your own personal use. Commercial use is prohibited.