Economic Thought and Practice, , 2025.
Preliminary communication
https://doi.org/10.17818/EMIP/2025/45
TIME-VARYING INEFFICIENCY IN EXCHANGE RATE RETURNS: THE CASE OF EURO AGAINST MAJOR CURRENCIES
Mile Bošnjak
; University of Zagreb, Faculty of economics and business
*
Ivan Nova
; University of Zagreb, Faculty of economics and business
Zoran Wittine
; University of Zagreb, Faculty of economics and business
* Corresponding author.
Abstract
This paper examines the efficiency of the euro's exchange market against the USD, GBP, and CNY, which are generally considered highly efficient. We used two robust tests on a fixed-length rolling window to identify periods of inefficiency. A classification problem was then formulated to link these periods to specific market conditions. The data sample spanned from 1999 to 2025 for EUR/USD and EUR/GBP, and from 2005 to 2025 for EUR/CNY. Our findings show that market efficiency fluctuates over time. EUR/CNY returns were the most inefficient, followed by EUR/USD, with EUR/GBP returns being the most efficient. The detected periods of inefficiency appear to be linked to periods of crisis and high uncertainty. Logistic regression results also suggested that periods of lower volatility are more likely to be predictable or inefficient. These empirical findings align with market microstructure theory.
Keywords
EMH; market microstructure; euro; uncertainty; variance ratio test
Hrčak ID:
336425
URI
Publication date:
10.10.2025.
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