THE ASIAN CRISIS AND MARKET EFFICIENCY: A DIFFERENT PERSPECTIVE
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This paper investigates the effects ofthe 1997 Asian financial market crisis on the efficiency offoreign exchange markets for the Indonesian rupiah, Philippine peso, Malaysian ringgit, Thai baht, and Korean won. Based on a crisis and a non-crisis period, indications o f inefficiency are found via one cointegrating vector during the crisis period, but minimal evidence of inefficiency is found during the non-crisis period. Additional efficiency tests, however, reveal that random walk tests dominate error correction models in predictive ability during the crisis period. Thus evidence ofinefficiency is diminished and inefficiencies in foreign exchange markets do not appear to be a significant problem during either periods o f relative calm or periods ofextreme volatility.
Abstract
This paper investigates the effects ofthe 1997 Asian financial market crisis on the efficiency offoreign exchange markets for the Indonesian rupiah, Philippine peso, Malaysian ringgit, Thai baht, and Korean won. Based on a crisis and a non-crisis period, indications o f inefficiency are found via one cointegrating vector during the crisis period, but minimal evidence of inefficiency is found during the non-crisis period. Additional efficiency tests, however, reveal that random walk tests dominate error correction models in predictive ability during the crisis period. Thus evidence ofinefficiency is diminished and inefficiencies in foreign exchange markets do not appear to be a significant problem during either periods o f relative calm or periods ofextreme volatility.