Is the Malaysian Inter-Bank Foreign Exchange Market Efficienct? Some Recent Evidence Using the Cointegration Technique

Abstract

‘This paper investigates the implication of cointegration for foreign exchange market efficiency using both quarterly and monthly data. By using the Engle-Granger representation theorem, it can be shown that if two spot rates are cointegrated, then at least one may be used to predict the other. In other words, the spot rate does not embody all available information and hence is inconsistent with the weak form efficient market hypothesis. The results of our findings are consistent with the ‘proposition that the Malaysian spot exchange rate marke is weakly efficient at least in the long- run for the major currencies considered in the analysis .