Abstract:

Examining the efficiency of the market is a substantial issue for economies particularly in developing markets. The purpose of this study is to investigate the validity of weak-form market efficiency by using linear and nonlinear unit root tests of the exchange rate against the US dollar of the Next 11 countries over the period of January 1998 until December 2019. To this effect, we firstly perform the Harvey et al. (2008) linearity test to determine the characteristics of the series. Afterward, in order to examine the weak-form market efficiency, KPSS (1992), Zivot-Andrews (1992) and Lee-Strazicich (2013) tests were applied to linear series while Kapetanios et al. (2003) and Kruse (2011) tests were performed to nonlinear series. Generally, the findings revealed that the validity of the weak-form market efficiency is accepted for the Next 11 countries’ exchange rate. Depending on these results, the majority of the Next 11 countries’ exchange rate follows random walk hence it can be asserted that the current price of the exchange rate cannot be estimated by evaluating its historical prices. The obtained results also suggest that temporary shocks in the exchange rate leave permanent effects in the majority of Next 11 countries.

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