Nguyen, J., The Efficient Market Hypothesis: Is It Applicable to the Foreign Exchange Market?, Department of Economics, University of Wollongong, 2004.
The study analyses the applicability of the efficient market hypothesis to the foreign exchange market by testing the profitability of the filter rule on the spot market. The significance of the returns was validated by comparing them to the returns from randomly generated shuffled series via bootstrap methods. The results were surprising. For the total period (1984-2003) small filter rules could deliver significant returns indicating an inefficient foreign exchange market. However, once the data was separated into four sub-periods of five years to test the stability of the returns, the results indicate that only the first sub period delivered significant returns. In the last two sub periods or ten years, the returns from employing filter rules were negative. This supports the conclusion that the efficient market hypothesis is valid in the foreign exchange market.