engleski

Adaptive foreign exchange market hypothesis: case of Croatia

This paper aims to investigate time varying nature of the Croatian foreign exchange rate market using the concept of the adaptive market hypothesis (AMH). Data sample includes five major currencies (EUR, USD, GBP, JPY and CHF) in the period from January 1999 up to September 2021. Using relatively novel approach called fixed-length rolling window ensures robust results and stronger testing power avoiding data snooping bias. Empirical findings suggest that the efficiency of the foreign exchange market of the Croatian Kuna is currency dependent and varies over time. Fluctuations in the efficiency of the exchange rate markets may be triggered by the monetary interventions, financial crises and trade volumes. Among five major currencies longest periods of inefficiency were found in the case of the exchange rate of Croatian Kuna against Euro. Other exchange rate markets were found to be mostly efficient with short periods of adaptive expectations. These results emphasize importance of the ongoing Croatian accession to the European monetary union resolving the issues of inefficient foreign exchange rate market.

exchange rate market, automatic portmanteau test, adaptive market hypothesis, time-varying efficiency, Croatia, European Monetary Union

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