FOREIGN-EXCHANGE MARKET-EFFICIENCY REVISITED

The cointegration of spot rates is neither a necessary nor a sufficien t condition to account for the lack of foreign exchange market efficie ncy. Instead, Crowder [Crowder, W., 1994, 1996. J. Int. Money Finance 13, 551-564; 15, 661-664] and Engel [Engel, C., 1996. J. int. Money Fi nance 15, 557-560] claimed that the stationarity of the forward premiu m is crucial to the hypothesis of market efficiency. In this paper, we employ the panel unit-root test of Im et al. to examine the stationar ity of forward premia and interest differentials among nine OECD count ries. We reject the unit-root null for both the time series of the for ward premium and interest differential, which in turn supports the hyp othesis of foreign exchange market efficiency. (C) 1998 Elsevier Scien ce Ltd. All rights reserved. JEL classification: F31.