This paper investigates the hypothesis of market efficiency in Taiwan'
s foreign exchange market using the method of Gregory and Hansen (1906
), which allows for a one-time break in the linear long-run relationsh
ip between spot and forward exchange rates. In addition, die method of
dynamic ordinary least square provided by Stock and Watson (1993) is
applied to examine the significance of cointegrating coefficients. We
conclude that the structural instability in the cointegrating vector r
esults in the rejection of market efficiency.