Empirical Tests of the Assumptions Underlying Models for Foreign Exchange Rates

摘要

By means of a very powerful statistical technique the basic linear stochastic process assumption of all existing intertemporal models for weak form efficiency in foreign exchange markets is rejected. Other foreign exchange model based on spot-forward and risk premium relationship are thereby also rejected. The test were applied to the U.S. dollar vs. the Yen currency exchange market. Conclusions from the rejected models are thereby invalidated. Additionally, previous statistical forecast inference is to be suspected since forecast errors were found to be emphatically non-normal and nonlinear. (Author)