Testing Random Walk Hypothesis in Turkish Foreign Exchange Market

Testing Random Walk Hypothesis in Turkish Foreign Exchange Market

Levent Çıtak, Veli Akel, Murat Çetin
Copyright: © 2016 |Pages: 14
DOI: 10.4018/978-1-4666-9814-7.ch046
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Abstract

This chapter revisits the empirical validity of the weak-form efficient market hypothesis for Turkish foreign exchange markets. The random-walk hypothesis in foreign-exchange rates market is one of the most researched areas, particularly in developed economies. This chapter applies ADF and PP unit root test, Lo and MacKinlay's (1988) conventional variance ratio test and Ljung-Box Q tests to examine the validity of the random-walk hypothesis in the Turkish foreign-exchange market. The chapter utilizes weekly nominal TRY/USD exchange rate for data from January 2000 to December 2013. The results provide evidence rejecting the random walk hypothesis for weekly nominal exchange rate series.
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Literature Review

As far as the literature on efficient markets and random walk hypothesis is concerned, we aim to review selected papers on the validity of efficiency and random walk in foreign exchange markets with a special emphasis on variance ratio test.

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