Speed of adjustment within currency markets

Boulter, Terry 2007, Speed of adjustment within currency markets, International review of business research papers, vol. 3, no. 5, pp. 88-122.

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Title Speed of adjustment within currency markets
Author(s) Boulter, Terry
Journal name International review of business research papers
Volume number 3
Issue number 5
Start page 88
End page 122
Publisher World Business Institute
Place of publication Melbourne, Vic.
Publication date 2007-11
ISSN 1832-9543
Keyword(s) Market efficiency
Exchange rates
Speed of adjustment
Non-synchronous trading
Non-overlapping returns
Summary One measure of market efficiency is the speed at which prices adjust to fundamental value with the arrival of information. This paper examines this issue by estimating speed of adjustment coefficients using three  methodologies for eight currencies for the entire year of 1996 using half hourly non-overlapping return intervals. We find that the bulk of adjustment to fundamental value for all currencies occurs within the hour but then quickly deteriorates. Within the hour adjustment is sufficiently quick to be considered efficient but the lack of full adjustment to fundamental value is not what would be predicted within an efficient market. There is no evidence for any of the currencies studied of a tendency to over react. There is also little difference in the speeds of adjustment between actively and less actively traded  currencies. There is however a definite difference in the speed at which currencies adjustment depending on whether they are free floating or managed exchange rates. Free floating rates adjust much quicker. Government intervention slows adjustment to fundamental value.
Language eng
Field of Research 140305 Time-Series Analysis
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2007, World Business Institute
Persistent URL http://hdl.handle.net/10536/DRO/DU:30007471

Document type: Journal Article
Collections: Deakin Graduate School of Business
Higher Education Research Group
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