MARKET EFFICIENCY IN ITS WEAK FORM: THE PRE-COVID AND COVID INDONESIA ANALYSIS
MARKET EFFICIENCY IN ITS WEAK FORM: THE PRE-COVID AND COVID INDONESIA ANALYSIS

Author(s): Rui Dias, Paula Heliodoro, Paulo Alexandre, Hortense Santos, Cristina Vasco
Subject(s): Social Sciences, Economy
Published by: Udruženje ekonomista i menadžera Balkana
Summary/Abstract: This essay aims to analyze the efficiency, in its weak form, in the Exchange Markets IDR/MYR (Indonesia-Malaysia), IDR/PHP (Indonesia-Philippines), IDR/SGD (Indonesia-Singapore), IDR/THB (Indonesia-Thailand), IDR/GBP (Indonesia-UK), IDR/US (Indonesia-USA), IDR/EUR (Indonesia-Euro Zone/Europe). The sample comprises the period from September 3, 2018, to October 20, 2020, and the sample was partitioned into two subperiods: Pre-Covid and Covid. To carry out this analysis, different approaches were undertaken to assess whether: (i) the global pandemic promoted in(efficiency) in the exchange rates of Indonesia vs Malaysia, Philippines, Singapore, Thailand, UK, USA, Eurozone? The results suggest that in the Pre-Covid subperiod we can see that the random walk hypothesis is rejected, IDR/MYR (0.61), IDR/SGD (0.60), IDR/US (0.59), IDR/THB (0.56), IDR/EUR (0.55), IDR/GBP (0.54), except for the IDR/PHP pair (0.45) which evidences anti persistence. Already in the Covid period, we noticed that persistence increased significantly, like followed, IDR/EUR (0.82), IDR/PHP (0.81) IDR/SGD (0.80), IDR/US (0.80), IDR/MYR (0.78), IDR/THB (0.71), IDR/GBP (0.62). These findings show high levels of arbitrage, i.e., investors will be able to obtain abnormal profitability without incurring the additional risk, which could jeopardize the implementation of efficient portfolio diversification strategies due to market imbalance. The authors believe that these findings can help policymakers formulate a comprehensive response to improve the efficiency of the foreign exchange market during a global pandemic event.

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