DP1016 Efficiency and Expectations Revisited: A Foreign Exchange Market with Bayesian Players
|Author(s):||Nikos Christodoulakis, Sarantis C Kalyvitis, Nick Karamouzis|
|Publication Date:||September 1994|
|Keyword(s):||Bayesian Learning, Devaluation, Efficiency, Expectations, Unbiasedness|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1016|
The paper re-examines the efficiency hypothesis in the foreign exchange market. The traditional efficiency testing equations are reviewed and a model is developed that incorporates Bayesian revisions in the form of devaluation expectations. A number of propositions regarding the pattern of the coefficients in efficiency testing equations are established. The results are confirmed by the empirical estimation of the model for the Greek foreign exchange market.