THE ASIAN CRISIS AND MARKET EFFICIENCY: A DIFFERENT PERSPECTIVE

This paper investigates the effects of the 1997 Asian financial market crisis on the efficiency of foreign exchange markets for the Indonesian rupiah, Philippine peso, Malaysian ringgit, Thai baht, and Korean won. Based on a crisis and a non-crisis period, indications of inefficiency are found via one cointegrating vector during the crisis period, but minimal evidence of inefficiency is found during the non-crisis period. Additional efficiency tests, however, reveal that random walk tests dominate error correction models in predictive ability during the crisis period. Thus evidence of inefficiency is diminished and inefficiencies in foreign exchange markets do not appear to be a significant problem during either periods of relative calm or periods of extreme volatility.