Investigating the robustness of tests of the market efficiency hypothesis: contributions from cointegration techniques on the Canadian floating dollar
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Although the cointegration technique is being extensively used for hypothesis testing, very little work has been done to substantiate the results derived from this technique either with respect to robustness of model specification or sample stability. This paper focuses on this issue and uses post-float Canadian spot and forward rates, along with those of six other major European currencies, in testing the market efficiency hypothesis (MEH) using cointegration techniques, as a case study. In so doing, emphasis is placed upon the pretesting of each series for stationarity via a menu of unit root tests; iterative tests for the number of cointegrating vectors over the sample period; and extensions of the analysis to construct multi-dimensional models in an examination of the MEH between the Canadian dollar and six major European currencies in both the spot and forward markets.
Market efficiency hypothesis (MEH) , Cointegration techniques , Canadian rates
Mohammed Masih, Abul Mansur and Masih, Rumi. (1995). Investigating the robustness of tests of the market efficiency hypothesis: contributions from cointegration techniques on the Canadian floating dollar. Applied Financial Economics, 5, pp. 139-150.