Foreign Exchange Market Efficiency In Botswana

Open access

Abstract

The random walk behaviour of exchange rates in Botswana’s foreign exchange market is explored by employing unit root tests. The unit root tests employed include the ADF, PP and the KPSS. This paper uses monthly data for the period 2000:01 to 2015:12. The conclusive evidence based on the unit roots tests indicates that the behaviour of the Pula against the South African Rand, Japanese Yen and the American Dollar exchange rates is consistent with the random walk process and the weak form efficiency market hypothesis. However, the Pula against the British Pound is inconsistent with the weak form efficiency market hypothesis. These results compliment those from Namibia (Mabakeng and Sheefeni, 2014). Furthermore, there is no evidence of the semi-strong form level of efficiency as revealed by the cointegration results obtained. These results corroborates with those found by Wickremasinghe (2008) and Çiçek (2014) in which weak form was found to exist whilst the semi-strong form was found not to exist. This paper has filled an important gap as it is the first study to investigate the efficiency of the foreign exchange market in Botswana.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • 1. Andika P.A. Hanny L. & Fitri S.S. (2016). Are The Asian-5 Foreign Exchange Markets Efficient? Evidence from Indonesia Thailand Malaysia Singapore and Phillippines: Post-Global Economic Crisis 2008. Indonesian Capital Market Review 8(2) 83-93.

  • 2. Bashir R. Shakir R. Ashfaq B. & Hassan A. (2014). The Efficiency of Foreign Exchange Markets in Pakistan: An Empirical Analysis. The Lahore Journal of Economics 19 (1) 133-149.

  • 3. Bachelier L. (1900). Theory of Speculation A thesis presented to the Faculty of Sciences of the Academy of Paris on March 29 1900. Originally published in Annales de l’Ecole Normale Superieure 27 21-86

  • 4. Belkacem L. Meddeb Z. E. & Boubaker H. (2005). Foreign Exchange Market Efficiency: Fractional Cointegration Approach. International Journal of Business 10 (3) 285-302.

  • 5. Chiwira O. & Muyambiri B. (2012). A Test of Weak Form Efficiency for the Botswana Stock Exchange. British Journal of Economics Management & Trade 2 (2) 83-91.

  • 6. Çiçek M. (2014). A cointegration test for Turkish foreign exchange market efficiency. Asian Economic and Financial Review 4 (4) 451-471.

  • 7. Dutt S. D. & Ghosh D. (1999). A Note on the Foreign Exchange Market Efficiency Hypothesis. Journal of Economics and Financ 23 (2) 157-161.

  • 8. Fama E. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance 38 (1) 383-417.

  • 9. Fama E. F. (1965). The Behaviour of Stock-Market Prices. Journal of business 25 (2) 34-105.

  • 10. Gujarati D. N. (2003). Basic econometrics. New York: Gary Burke.

  • 11. Harper A. & Jin Z. (2012). Examining market efficiency in India: An empirical analysis of the random walk hypothesis. Journal of Finance and Accountancy 20 (1) 1-6.

  • 12. Ibrahim J. Long Y. Ghani H. A. & Salleh S. I. (2011). Weak-Form Efficiency of Foreign Exchange Market in the Organisation for Economic Cooperation and Development Countries: Unit Root Test. International Journal of Business and Management 6 (6) 55-65.

  • 13. Lee H.-Y. & Khatanbaatar S. (2012). Efficiency Tests in Foreign Exchange Market. International Journal of Economics and Financial Issues 2 (2) 216-224.

  • 14. Mabakeng M. E. & Sheefeni J. P. (2014). Examining the Weak Form Efficiency in Foreign Exchange Market In Namibia. International Review of Research in Emerging Markets and the Global Economy (IRREM):An Online International Research Journal 1 (4) 174-187.

  • 15. Masalila K and Motshidisi O. (2003). Botswana’s Exchange rate Policy. BIS Paper No: 17 122-127.

  • 16. Motlaleng G. R (2009) Botswana’s Crawling-Peg Exchange Rate System: Trends and Variations in the Pula Exchange Rate. Botswana Notes and Records Vol. 41 104-111

  • 17. Noman A. M. & Minhaz A. U. (2008). Efficiency of the foreign exchange markets in South Asian Countries. Bangladesh: American International University.

  • 18. Ortiz E. Cabello A. Jesús R. d. & Johnson R. (2005). Exchange Rates Market efficiency And Purchasing Power Parity: Long-Run Tests For The Latin American Currencies. Revista Latinoamericana de Economía 85-108.

  • 19. Pilbeam K. (2010). Finance And Financial markets 3rd Edition. London Palgrave.

  • 20. Radikoko I. (2014). Testing The Random Walk (Rw) Behaviour of Botswana’s. Journalof Business Theory and Practice 2 (11) 84-99.

  • 21. Sarno L. & Taylor M. P. (2001). Official Intervention in the Foreign Exchange Market: Is It Effective and If So How Does It Work? Journal of Economic Literature 39 (1) 839-868.

  • 22. Serbinenko A. & Rachev S. T. (2009). Intraday spot foreign exchange market. Analysis of efficiency liquidity and volatility. Investment Management and Financial Innovations 6 (4) 35-45.

  • 23. Sifunjo K. E. Ngugi R. W. Pokhariyal G. & Wainaina G. (2008). An analysis of the efficiency of the foreign exchange market in Kenya. Economics Bulletin 1-13.

  • 24. Tweneboah G. Amanfo A.-N. & Kumah S. P. (2013). Evidence of market inefficiency and exchange rate predictability in Ghana. Ghanaian Journal of Economics 1 (1) 51-66.

  • 25.Wickremasinghe G. B. (2004). Effeciecy Of Foreign Exchange Market: A Developing Country Perspective. Caulfield: Monash University.

  • 26.Wickremasinghe G. B. (2008). Predictability Of Exchange Rates In Sri Lanka: A Test Of The Efficient Market Hypothesis. Asian Academy of Management Journal of Accounting and Finance 3 (2) 43-59.

Search
Journal information
Metrics
All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 406 139 6
PDF Downloads 217 103 7