Abstract
This paper carries out multi-currency, multi-horizon and combined tests of simple market efficiency using alternative covariance matrix estimators whose finite sample performances have been examined elsewhere in the literature. The data utilized are properly aligned weekly exchange rates from June 1973 to December 1994 on bid spot, 1-month, 3-month and 6-month ask forward rates for several currencies. The results demonstrate that tests of market efficiency are sensitive to the information set specified, the prediction horizon considered and the covariance matrix estimator employed. In most but not all cases, rejections of market efficiency are overturned using a prewhitened heteroskedasticity and autocorrelation consistent covariance matrix estimator with optimal asymptotic properties and better finite sample performance.
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