Title: Examining the weak-form efficiency and opportunities for technical analysis in the foreign exchange market: a new insight from trading partners of Pakistan

Authors: MengYun Wu; Um-e-Habiba; Muhammad Husnain; Bushra Sarwar

Addresses: School of Finance and Economics, Jiangsu University, Zhenjiang, 212013, China ' School of Finance and Economics, Jiangsu University, Zhenjiang, 212013, China ' Department of Business Administration, University of Sahiwal, Sahiwal 57000, Pakistan ' Department of Management Sciences, Ghulam Ishaq Khan Institute of Engineering Sciences and Technology, Pakistan

Abstract: Foreign exchange market prediction is one of the most challenging problems which continues to distress both researchers and financial analysts, because investors can earn abnormal profits only if market are inefficient. The objective of this study is to analyse the weak-form efficiency of foreign currencies of major trading partners of Pakistan which includes China, Germany, Hong Kong, Italy, Japan, Kuwait, Saudi Arabia, UAE, the UK and the USA. We use a battery of parametric and non-parametric test (measure of normality, autocorrelation and Q-statistics, run test, Kolmogorov-Smirnov test and variance ratio tests) on the most recent dataset. Time period spans from January 1, 2006 to January 31, 2017 on daily, weekly and monthly basis which provides robustness of our findings. This study reveals that foreign exchange market are weak-form inefficient, therefore there exist opportunities for a technician in terms of technical trading strategies in the foreign exchange market of major trading partners of Pakistan. This study has important implication for technical trading strategies, developing diversified portfolios and for the application of risk management techniques in foreign exchange market.

Keywords: weak-form efficiency; technical trading strategies; exchange rate; emerging market; variance ratio test; Pakistan.

DOI: 10.1504/IJBEM.2021.112779

International Journal of Business and Emerging Markets, 2021 Vol.13 No.1, pp.1 - 29

Received: 06 Aug 2019
Accepted: 12 Dec 2019
Published online: 02 Feb 2021 *

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