In this thesis an international investment filter rule is used to test both the tendency for
Purchasing Power Parity (PPP) to hold in the long run and the hypothesis of foreign
exchange market efficiency for the four most actively traded currencies in the world
vis-a-vis the United States dollar: the British pound, the Japanese yen, the Germany
mark, and the Canadian dollar. One way to examine whether there is a tendency for
PPP to hold in the long run and whether the foreign exchange market is efficient, is to
place more money in the 'undervalued' currency according to PPP deviations or to invest
according to PPP deviations, putting more money into interest bearing securities in the
'undervalued' currency, the more this currency is undervalued. The return can then be
compared with a reference rule which does not use this filter, but instead puts an equal
value of money into the currencies or the securities of each country.
This thesis has produced three results. First, using the PPP filter in the exchange
money market yields no significantly abnormal rate of return compared with the reference
rule. The result suggests that we can not reject the hypothesis that the tendency for PPP
to hold in the long run does not exist. Second, using the PPP filter to invest in securities
also yields no significantly higher rate of return compared with the reference rule. And
third, when comparing the domestic (or foreign) interest rates with the rates of return
for the domestic (or foreign) investor who uses the PPP filter, there is no significant
difference between these rates in the long run. The last two results suggest that we can
not reject the hypothesis that the foreign exchange-market is efficient. / Business, Sauder School of / Graduate
| Identifer | oai:union.ndltd.org:UBC/oai:circle.library.ubc.ca:2429/42010 |
| Date | January 1989 |
| Creators | Chen, Renjie |
| Publisher | University of British Columbia |
| Source Sets | University of British Columbia |
| Language | English |
| Detected Language | English |
| Type | Text, Thesis/Dissertation |
| Rights | For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use. |
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