Variance ratio testing of the Australian forward foreign exchange market

Abstract

This paper explores variance ratio testing of the Australian forward foreign exchange market. Our results support autocorrelation in our first sample period (July 1985 to January 1990) but an absence of autocorrelation in our second sample period (February 1990 to September 1995). This is consistent with greater efficiency in the forward foreign exchange market post 1990. This is consistent with the ‘peso’ problem associated with Australia's foreign debt disappearing with the acceptance of the arguments of Pitchford (Economic Papers, 8, 1989) and Corden (Economic Papers, 10, 1991) that the foreign debt does not matter.