The Random Walk Behavior of Foreign Exchange Rates: An Examination of Nine Pacific-Basin Countries

Abstract

This study examines the short-term and long-term behavior of weekly nominal exchange rates for the nine Pacific-Basin countries during the period 1976 to 1991. The main testing method is the two different versi.ons of the rescaled range analysis and for comparison purpose, we also employ the heteroscedasticity-robust variance ratio test. Evidence indicates that short term dependence exists in the Hong Kong dollar, the Korean won, and the Taiwan dollar. Furthermore, the findings show that the Hong Kong dollar demonstrates strong long-term dependence. Other currencies examined (the Indonesian rupiah, Malaysian ringgit, Philippine peso, Singapore dollar, and Thailand baht) do not display persistent movements. In view of the three currencies that exhibit short-or long-term dependence, our results indicate that the random walk hypothesis tends to be rejected for the currencies of the countries that have more rigid exchange rate arrangements or restricted capital control policies.