Simple measures of market efficiency: A study in foreign exchange markets

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Bibliographic Information

Published
2017-03
Resource Type
journal article
Rights Information
  • https://www.elsevier.com/tdm/userlicense/1.0/
DOI
  • 10.1016/j.japwor.2016.11.001
Publisher
Elsevier BV

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Abstract 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.

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