FOREIGN-EXCHANGE MARKET-EFFICIENCY TESTS IN SUB-SAHARAN AFRICA

Are frequent changes in freely floating exchange rates attributable to stabilising speculation reflecting changes in the fundamental determi nants of currencies or to destabilising behaviour of various kinds, dr iving prices away from fundamentals, and creating 'excess' volatility? This paper, motivated by the need to assess appropriate tests for eff iciency for the growing range of liberalised and liberalising foreign exchange markets in Sub-Saharan African countries, has the following o bjectives: (i) briefly to survey the empirical methodology for testing market efficiency in the forex market, with an emphasis on integratin g the new cointegration methodology; (ii) highlighting the significant data difficulties in empirical work, given controls and frequent stru ctural breaks, for the use of these techniques in Africa; (iii) illust rating the way in which some of these techniques can be applied in Sou th Africa and some other African countries; and (iv) suggesting furthe r research on efficiency that could be carried out using similar data.