A study on testing the effective markets hypothesis in emerging foreign exchange markets

The main objective of this study is to investigate market efficiency of emerging foreign exchange markets in weak form and to examine the interactions between foreign exchange markets. The weak form efficiency argues that future price movements cannot be predicted by utilizing past price movements. If a market does not have weak form efficiency, it is not possible to have a semi-strong and strong form of efficiency. For this study, Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC), by the 2018-2022 period for the list published in the developing countries from the group of high-income, namely Turkey, Argentina, Mexico and Jamaica are discussed. Weekly data for the foreign exchange markets of the relevant countries for the period January 2009-January 2019 is available at www.investing.com. The market efficiency of the relevant countries was tested in US Dollar, Euro and Japanese Yen currencies, which had the largest share in the foreign exchange transactions. Dickey Fuller and Phillips Perron unit root tests were used. Since price movements are expected to follow stochastic gait in weak form efficient market, the efficiency hypothesis has been evaluated with stochastic gait model. With this study it has been aimed to measure the predictability of future prices by using past information about developing foreign exchange markets at the same time. Technological developments and liberalization in national economies brought globalization and integration between markets. For this purpose, the interaction between the cointegration concept and the developing foreign exchange markets has been analyzed by Johansen Cointegration Tests and the cointegration relationship between the markets has been revealed. Keywords: Foreign Exchange Market, Effective Market Hypothesis, Developing Countries.