Testing the Efficient Market Hypothesis and the Model-Data Paradox of Chaos on Top Currencies from the Foreign Exchange Market (FOREX)
In this paper, we analyse two interesting applications related to the dynamics of economic phenomena linked to the Efficient Market Hypothesis (EMH), informative surprises, and the Model-Data Paradox of Chaos in certain top currency pairs from the foreign exchange market (FOREX). On the one hand, we...
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MDPI AG
2023-01-01
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| author | Julio E. Sandubete León Beleña Juan Carlos García-Villalobos |
| author_facet | Julio E. Sandubete León Beleña Juan Carlos García-Villalobos |
| author_sort | Julio E. Sandubete |
| collection | DOAJ |
| description | In this paper, we analyse two interesting applications related to the dynamics of economic phenomena linked to the Efficient Market Hypothesis (EMH), informative surprises, and the Model-Data Paradox of Chaos in certain top currency pairs from the foreign exchange market (FOREX). On the one hand, we empirically show that the FOREX market reacts under the Efficient Market Hypothesis in some cases, creating a significant variation in a short period of time (15, 30, and 60 min) in the quotes of the main currencies from the most important economic regions in the West (the United States, Europe, and the United Kingdom). This variation would depend on the actual deviation of high-impact macroeconomic news reported by these markets in relation to trade balance, unemployment rate, Gross Domestic Product (GDP), retail sales, the Industrial Production Index (IPI), and the Consumer Price Index (CPI). On the other hand, by testing the Model-Data Paradox of Chaos, we empirically verify that if we consider all the information available in the financial markets of currencies (or at least, more desegregated data) instead of daily data, and we apply a robust chaotic behaviour detection method, we can find differences in relation to the detection of chaos on the same series but with different temporal frequencies. This allows us to confirm that behind these financial time series which show an apparently random irregular evolution, there would be a generating system which, although unknown in principle, would be deterministic (and nonlinear), and we could take advantage of that deterministic character to make predictions, even if only in the short term, understanding “short term” as the time it takes for the market to incorporate these informative surprises in the FOREX market analysed. |
| first_indexed | 2024-03-09T11:47:44Z |
| format | Article |
| id | doaj.art-9fbb0f9d8b704f5ea39241396f44f735 |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-09T11:47:44Z |
| publishDate | 2023-01-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-9fbb0f9d8b704f5ea39241396f44f7352023-11-30T23:20:04ZengMDPI AGMathematics2227-73902023-01-0111228610.3390/math11020286Testing the Efficient Market Hypothesis and the Model-Data Paradox of Chaos on Top Currencies from the Foreign Exchange Market (FOREX)Julio E. Sandubete0León Beleña1Juan Carlos García-Villalobos2Universidad Camilo José Cela, c/Castillo de Alarcón, 49, 28691 Villanueva de la Cañada, SpainUniversidad Francisco de Vitoria, Ctra. Pozuelo-Majadahonda Km 1,800, 28223 Pozuelo de Alarcón, SpainUniversidad San Pablo-CEU, CEU Universities, c/Julián Romea 23, 28003 Madrid, SpainIn this paper, we analyse two interesting applications related to the dynamics of economic phenomena linked to the Efficient Market Hypothesis (EMH), informative surprises, and the Model-Data Paradox of Chaos in certain top currency pairs from the foreign exchange market (FOREX). On the one hand, we empirically show that the FOREX market reacts under the Efficient Market Hypothesis in some cases, creating a significant variation in a short period of time (15, 30, and 60 min) in the quotes of the main currencies from the most important economic regions in the West (the United States, Europe, and the United Kingdom). This variation would depend on the actual deviation of high-impact macroeconomic news reported by these markets in relation to trade balance, unemployment rate, Gross Domestic Product (GDP), retail sales, the Industrial Production Index (IPI), and the Consumer Price Index (CPI). On the other hand, by testing the Model-Data Paradox of Chaos, we empirically verify that if we consider all the information available in the financial markets of currencies (or at least, more desegregated data) instead of daily data, and we apply a robust chaotic behaviour detection method, we can find differences in relation to the detection of chaos on the same series but with different temporal frequencies. This allows us to confirm that behind these financial time series which show an apparently random irregular evolution, there would be a generating system which, although unknown in principle, would be deterministic (and nonlinear), and we could take advantage of that deterministic character to make predictions, even if only in the short term, understanding “short term” as the time it takes for the market to incorporate these informative surprises in the FOREX market analysed.https://www.mdpi.com/2227-7390/11/2/286macroeconomic newsefficient market hypothesisinformative surprisesmodel-data paradox of chaosLyapunov exponentsforeign exchange market |
| spellingShingle | Julio E. Sandubete León Beleña Juan Carlos García-Villalobos Testing the Efficient Market Hypothesis and the Model-Data Paradox of Chaos on Top Currencies from the Foreign Exchange Market (FOREX) Mathematics macroeconomic news efficient market hypothesis informative surprises model-data paradox of chaos Lyapunov exponents foreign exchange market |
| title | Testing the Efficient Market Hypothesis and the Model-Data Paradox of Chaos on Top Currencies from the Foreign Exchange Market (FOREX) |
| title_full | Testing the Efficient Market Hypothesis and the Model-Data Paradox of Chaos on Top Currencies from the Foreign Exchange Market (FOREX) |
| title_fullStr | Testing the Efficient Market Hypothesis and the Model-Data Paradox of Chaos on Top Currencies from the Foreign Exchange Market (FOREX) |
| title_full_unstemmed | Testing the Efficient Market Hypothesis and the Model-Data Paradox of Chaos on Top Currencies from the Foreign Exchange Market (FOREX) |
| title_short | Testing the Efficient Market Hypothesis and the Model-Data Paradox of Chaos on Top Currencies from the Foreign Exchange Market (FOREX) |
| title_sort | testing the efficient market hypothesis and the model data paradox of chaos on top currencies from the foreign exchange market forex |
| topic | macroeconomic news efficient market hypothesis informative surprises model-data paradox of chaos Lyapunov exponents foreign exchange market |
| url | https://www.mdpi.com/2227-7390/11/2/286 |
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