Weak Form Efficiency Of Currency Futures: Evidence From India

Abstract

With the advent of LPG Policy many foreign firms have invested in India and home country firms too have expanded their operations outside the nation which results in greater inflow and outflow of foreign currency and INR giving rise to currency fluctuations, these fluctuations were exposed to more volatility after the US financial crisis of 2008. The increased risk exposure can be mitigated by employing techniques such as hedging, speculation and by using instruments like Futures and Forward contracts. Currency futures have been considered as the best instruments for managing risk against foreign currency exchange rate volatility. Keeping this into consideration the present paper analyses the efficiency of random walk hypothesis by testing currency futures in weak form efficiency post financial crisis of 2008. The sample includes the monthly closing price indices for the period January 2009 to March 2019. The hypothesis tested is whether the currency futures USD/INR are weak form efficient. Statistical tools employed in the study encompasses Runs Test, Autocorrelation Function, Kolmogorov-Smirnov Test (K-S Test), Augmented Dickey Fuller Test (ADF Test), and Ljung Box Test. The results of the employed tests provide evidence on the non-randomness of the time series.