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East Asian Economic Review Vol. 14, No. 2, 2010. pp. 139-165.

DOI https://dx.doi.org/10.11644/KIEP.JEAI.2010.14.2.221

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Informational Efficiency in the USD/KRW Spot Market: Some Evidence from a Joint Runs Test and Foreigners’ Trading Rule Profits

Author

Changmo Ahn

Gyeongsang National University

cmahn@gnu.ac.kr

Creative Commons Attribution License

EAER is an open access journal distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license.

Abstract

This paper examines whether the USD/KRW spot market is efficient in processing new information by employing both the Runs Test and the foreigners’ securities trading rule profitability approach. Excluding the period of 2008 financial crisis, the USD/KRW spot market is efficient in terms of close rates, but not efficient in terms of open rates. The foreigners’ securities trading rule can also produce statistically significant profits if the trades are based on open prices, though not high. This implies that traders can predict future exchange rates, to some degree, with the information on foreign net purchases of securities in the Korean stock/ bond markets. If we consider the related interest differentials and transaction costs, however, the profits fade out to marginal level or below. This result implies that traders can expect the existence of predictability in the USD/KRW spot market, but not profitability.

JEL classification: F31, E4

Keywords

Market (Informational) Efficiency, USD/KRW Rates, Runs Test, Foreigners’ Trading Rule Profits, Foreign Net Purchases of Korean Stock/Bond

Language

Korean

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