Is the Yen-European Cross-Rate Market Efficient?

Terence Tai-Leung Chong¹, Lok-Man Chiang²
and Venus Khim-Sen Liew³

Abstract

This paper investigates the efficiency of the Yen-European spot cross-rate market via the Relative Strength Index (RSI) trading rules. The efficacies of two types of RSI trading strategies are examined. Among others, the findings in this study suggest: Firstly, Yen per German Mark is more predictable by RSI trading rules as compared with other cross-rates under study. Secondly, the RSI with a longer window width tends to be more predictive than the RSI with a shorter window width. Thirdly, the buy-sell round trip transaction is more profitable than either the buy or sell signal. Our calculations show that the cross-rate market is efficient.

JEL classification: F31; G15
Keywords: Relative Strength Index; Trading Rules; Cross Rates

1. Corresponding author, Department of Economics, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong, E-mail: chong2064@cuhk.edu.hk.

2, 3. Labuan School of International Business & Finance, Universiti Malaysia Sabah, Malaysia.

Acknowledgments

We would like to thank an anonymous referee for helpful comments. All errors are ours.

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