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Testing the martingale hypothesis in deutsche mark futures with models specifying the form of heteroscedasticity
Author(s) -
McCurdy Thomas H.,
Morgan Ieuan G.
Publication year - 1988
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950030303
Subject(s) - heteroscedasticity , martingale (probability theory) , futures contract , econometrics , null hypothesis , economics , alternative hypothesis , currency , financial economics , mathematics , statistics , monetary economics
We examine the form of heteroscedasticity in Deutsche Mark futures price data and compare different specifications of the particular way that the variance is changing over time. The martingale hypothesis is tested with daily and weekly rates of change of futures prices for the Deutsche Mark and some evidence is found against this hypothesis in analyses of daily data from 1981 to 1985. This rejection of the martingale hypothesis may be attributed to trading day effects in foreign currency prices and the resulting day‐of‐the‐week patterns in futures prices. When the martingale hypothesis is tested with weekly data the null hypothesis is retained.