Title: The informational efficiency of the black and official exchange markets of DR-CAFTA nations

Authors: Shuming Bai, Kai S. Koong, Lai C. Liu, Binshan Lin

Addresses: Department of Finance, School of Business, The University of Texas of the Permian Basin, 4901 E. University Blvd., Odessa, TX 79762, USA. ' Department of Computer Information Systems and Quantitative Methods, College of Business Administration, The University of Texas – Pan American, 1201 West University Drive, Edinburg, TX 78539, USA. ' Department of Computer Information Systems and Quantitative Methods, College of Business Administration, The University of Texas – Pan American, 1201 West University Drive, Edinburg, TX 78539, USA. ' College of Business Administration, BE321, Louisiana State University in Shreveport, Shreveport, LA 71115, USA

Abstract: This study examines the long-run informational efficiency and short-run predictability of the black and official exchange markets of Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) nations. Applying a battery of nonparametric as well as time series models, this study finds that the black market information exhibited a nonrandom behaviour. In four of the six examined countries, the black and official markets were found to have a co-integrating relationship. Both the vector error correction model and the Granger causality test confirmed that the black market information was a good predictor of the official rates.

Keywords: electronic finance; e-finance; black market rates; official exchange rates; market efficiency; Dominican Republic-Central American Free Trade Agreement; DR-CAFTA; Dominican Republic.

DOI: 10.1504/IJEF.2008.020600

International Journal of Electronic Finance, 2008 Vol.2 No.3, pp.330 - 347

Published online: 01 Oct 2008 *

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