Richard A. Ajayi

A variance ratio test of random walks in exchange rates: Evidence from Pacific Basin economies

Abstract Recent methodological advances in testing the random walk hypothesis (RWH) in exchange rates have been applied only to currencies of industrial economies. This paper employs one of such advances, the variance ratio tests first proposed by Cochrane (1988), to examine the RWH for the currencies of eight economies of the Pacific Basin. The results show that, in general, the random walk model is not consistent with the dynamics of daily or weekly exchange rate innovations in the majority of these markets.

A test of US equity market reaction to surprises in an era of high trading volume

This paper examines the reactions of investors to the arrival of unexpected information in five major US equity markets from 1990 to 2001, a period characterized by high daily trading volume and the increasing presence of noise-traders. Market surprises are identified using a strictly quantitative approach, cumulative abnormal returns are calculated and tracked for a period of 30 days after each favourable or unfavourable event. The empirical results provide evidence that investors’ reactions during the sample period are consistent with the prediction of the Uncertain Information Hypothesis in all markets except NASDAQ. One major implication of these results for investors is that implementing a contrarian strategy of buying current losers and selling current winners will not generate superior returns.

An Empirical Analysis of the Day-of-the-Week Effect in Stock Returns: The Case of U.S. and Japan

This article employs daily closing index data to investigate the relationship between the U.S. and Japanese equity markets. It reassesses and extends the Becker et al. (1990) methodology over a longer sample space. The article then advances the analysis further by estimating structural equation models and by including the exchange rate as an additional explanatory variable. The resulting multivariate econometric design shows that the U.S. equity market strongly affects the Japanese equity market Monday through Friday while the Japanese market exerts a weaker influence on the U.S. market with the influence observed only on Mondays and Wednesdays.