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An Empirical Examination of Foreign Exchange Market Efficiency: Applying the Filter Rule Strategy to Intra‐Daily DM/$ Exchange Rates
Author(s) -
Kwok Chuck C. Y.,
Gucht Linda
Publication year - 1991
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/j.1467-646x.1991.tb00095.x
Subject(s) - inefficiency , statistic , liberian dollar , economics , filter (signal processing) , econometrics , market efficiency , profit (economics) , foreign exchange market , sample (material) , exchange rate , monetary economics , mathematics , financial economics , statistics , microeconomics , finance , chemistry , computer science , chromatography , computer vision
Testing the existence of excess filter rule trading profits is one of the weak‐form tests of market efficiency. Using intra‐daily Deutsche mark/U.S. dollar exchange rate data from February 1985 to August 1989, this study applies the x' statistic in Sweeney (1986) to examine whether significant excess filter rule profits exist. The results show that many combinations of in and out filters generate significant x' statistics. Among them, in and out filters around 0.05–0.1 % generally lead to the highest excess filter rule profit. Furthermore, the performance of the filters remains stable when the sample period is broken down into three equal subperiods. Such findings indicate that there may be inefficiency in the intra‐daily Deutsche mark/U.S. dollar market. An investor may earn excess profit in this market by applying the filter rule strategy.