Testing for martingale difference hypothesis with structural breaks: Evidence from Asia–Pacific foreign exchange markets | Zendy

Afees A. Salisu | Zendy; Tirimisiyu F. Oloko | Zendy; Oluwatomisin J. Oyewole | Zendy

Open Access

Testing for martingale difference hypothesis with structural breaks: Evidence from Asia–Pacific foreign exchange markets

Author(s) -

Afees A. Salisu,

Tirimisiyu F. Oloko,

Oluwatomisin J. Oyewole

Publication year - 2016

Publication title -

borsa istanbul review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.682

H-Index - 21

eISSN - 2214-8469

pISSN - 2214-8450

DOI - 10.1016/j.bir.2016.09.001

Subject(s) - econometrics , structural break , unit root , economics , martingale (probability theory) , martingale difference sequence , unit root test , autocorrelation , statistical hypothesis testing , mathematics , statistics , financial economics , cointegration

This study tests for martingale difference hypothesis (MDH) in nine selected Foreign Exchange (FX) markets from Asia–Pacific countries. Its main contributions to the literature include: (i) it adopts recent techniques in both the Autocorrelation based and Spectrum based tests for MDH, namely; the Wild Bootstrap Automatic Variance Ratio test by Kim (2009) and the Wild Bootstrap Generalized Spectral test by Escanciano and Velasco (2006); (ii) it determines structural breaks endogenously for all the returns series using Perron (2006) unit root test with structural break, and (iii) based on the Perron results, it obtains two sub-samples and thereafter tests for MDH. Empirical result from this study shows that FX market efficiency could be inconsistent over time due to changes in policies and events. Thus, a preliminary test for the presence significant structural break may be necessary when testing for MDH

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