Author(s)

Lydie Myriam Marcelle Amelot, Subadar Agathee Ushad, Matthew Lamport

Finance and Accounting Department, Faculty of Law and Management, University of Mauritius, Reduit, Mauritius.

The present study investigates the efficiency of the forex market based on the theory of the Efficient Market Hypothesis in Mauritius, a well-diversified and emerging economy in the African region. Hence, this study considers the case of Mauritian forex market nominal spot rate daily data namely EUR/MUR, USD/ MUR, GBP/ MUR and JPY/ MUR over a time period of 5 years ranging from 2012 to 2016. The technique used for analysis is firstly concentrated on the use of Augmented-Dickey Fuller (ADF) and Philips Peron (PP) unit root to test the weak-form of efficiency and secondly, the Johansen Cointegration Test, the Granger Causality Test and Variance Decomposition are utilized to examine the existence of semi-strong form efficiency in the Mauritian foreign exchange market. Results indicated that the unit root test tested by ADF and PP unit root test support the weak form market as it follows a random walk process. Secondly, the Johansen Cointegration test reveals that there is no long run relationships among foreign exchange variables. However, the Granger causality test confirmed the existence of unidirectional and bidirectional relationships among the various exchange rates. Moreover, the Variance Decomposition confirmed the presence of long run co-movements among the exchange rates. Therefore, both tests fail to support the semi-strong form market. This means that one exchange rate can predict one or more exchange rates which is against the semi-strong form market hypothesis. Therefore, it is deduced that the foreign market is efficient in the weak-form but is inefficient in the semi-strong form in Mauritius.

Efficient Market Hypothesis, Forex Market, Stock Exchange of Mauritius, Emerging Markets

Marcelle Amelot, L. , Ushad, S. and Lamport, M. (2017) Testing the Efficient Market Hypothesis in an Emerging Market: Evidence from Forex Market in Mauritius. Theoretical Economics Letters, 7, 2104-2122. doi: 10.4236/tel.2017.77143.