Empirical analysis on random walk behavior of foreign exchange rates
Author(s)
Zou, Shanshan
Advisor(s)
Kilic, Rehim
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Abstract
This thesis conducts a comprehensive examination on the random walk behavior of 29 foreign exchange rates over the period of floating exchange regime, using variance-ratio tests. The cross-country and time-series test show that random walk model cannot be rejected on majority, and the random walk behavior is quite volatile across the whole floating exchange regime period. It then goes further to explore possible factors that can explain the probability of rejection/ non-rejections on random walk model using linear as well as nonlinear probability models, and find that the factors such as capital openness and investment-to-trade ratio significantly increases the chance of its exchange rate exhibiting random walk behavior.
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Date
2010-04-12
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Text
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Thesis