foreign exchange market anomalies
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Why doesn't the rational efficient markets paradigm provide a satisfactory explanation for many foreign exchange market anomalies?
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Solution Summary
Why the rational efficient markets paradigm provide a satisfactory explanation for many foreign exchange market anomalies is determined.
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Introduction:
Chakrabarti & Sen (2011) provides that financial market anomalies provide grounds to question the efficiency of financial markets. The foreign exchange market is an active financial market as large activities in trade and therefore the market is viewed as liquid and efficient. According to Chakrabarti & Sen (2011), efficiency is important in the foreign exchange market since prices of assets, goods and factors of production are affected by changes in exchange rates.
The efficient markets hypothesis explains foreign market anomalies by maintaining that market prices fully reflect available information. The hypothesis was initially accepted to explain anomalies in the market since prices were seen to be in accordance with random walk model and variations in equity returns. Russel & Torbey (2002) provide that efficient market hypothesis does not adequately depict trading operations in the economy thus does not fully explain
Why efficient markets paradigm does not provide a satisfactory explanation for many foreign exchange market anomalies
Russel & Torbey (2002) provide different anomalies that the efficient market hypothesis does not fully explain and ...
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