Abstract
In this paper we agrue that more volatility in the foreign exchange market contributes to inefficiency in that market. This hypotheses is tested empirically following a two-step procedure. In the first step degree of inefficiency in the foreign exchange market is measured for 17 developed countries using quarterly time series data over 19731-198811 period. In the second step these measures are used in a cross-country regression where degree of inefficiency is regressed on a measure of exchange-rate volatility of each country. The empirical results do support our conjecture. [F31]
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