TY - JOUR
T1 - Simple measures of market efficiency
T2 - A study in foreign exchange markets
AU - Kitamura, Yoshihiro
N1 - Funding Information:
I thank an anonymous referee and an associate editor. High quality comments from them have improved the previous version. I thank Wataru Ota, Ivan Indriawan, Emilio Colombo, and seminar participants at Osaka University, the Auckland Finance Meeting, and the 13th INFINITI Conference on International Finance for helpful comments. I gratefully acknowledge financial support from JSPS KAKENHI Grant Number 15K03558 and a grant-in-aid from the Zengin Foundation for Studies on Economics and Finance . The usual disclaimer applies.
Publisher Copyright:
© 2016 Elsevier B.V.
PY - 2017/3/1
Y1 - 2017/3/1
N2 - Previous studies on the stock market consider the degree of market efficiency to be an inverse of the predictive power of order flow. Following this notion, I propose simple market efficiency measures in foreign exchange (FX) markets. The first measure considers the market to be inefficient when positive (negative) order flows predict the appreciation (depreciation) of a base currency. The second measure considers whether predictions using order flow result in tangible gains. These measures are related to liquidity levels and information factors in FX markets, unlike the measures in previous studies.
AB - Previous studies on the stock market consider the degree of market efficiency to be an inverse of the predictive power of order flow. Following this notion, I propose simple market efficiency measures in foreign exchange (FX) markets. The first measure considers the market to be inefficient when positive (negative) order flows predict the appreciation (depreciation) of a base currency. The second measure considers whether predictions using order flow result in tangible gains. These measures are related to liquidity levels and information factors in FX markets, unlike the measures in previous studies.
KW - Information asymmetry
KW - Liquidity
KW - Market efficiency
KW - Order flows
KW - Stealth trading
UR - http://www.scopus.com/inward/record.url?scp=84998775175&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84998775175&partnerID=8YFLogxK
U2 - 10.1016/j.japwor.2016.11.001
DO - 10.1016/j.japwor.2016.11.001
M3 - Article
AN - SCOPUS:84998775175
SN - 0922-1425
VL - 41
SP - 1
EP - 16
JO - Japan and the World Economy
JF - Japan and the World Economy
ER -