Foreign Exchange Market Efficiency : Fractional Cointegration Approach

In the present study, we investigate the market weak efficiency hypothesis (MEH) in the case of the Tunisian exchange market. For this aim, we use fractional cointegration tests based essentially on estimation of an error correction bivariate ARFIMA model. The cointegration tests are conducted using spot and 1- month forward daily exchange rate of the Tunisian Dinar (TND) vis-a-vis the US dollar (USD), the Euro and the Japanese Yen (JPY) during the period between January 1999 and December 2003. For this, an error correction bivariate ARFIMA model (VECFM) was estimated. The results indicate evidence of fractional cointegration between the one-month forward rate and the spot rate relative to these parities (TND/USD) and (TND/Euro)