A Literature Review of Variance-Ratio Tests in Foreign Exchange Rates: = A Literature Review of Variance-Ratio Tests in Foreign Exchange Rates:

다국어 초록 (Multilingual Abstract)

Many statistical tests were designed to test the random walk hypothesis but a class of test, based on the variance-ratio(VR) test, has gained tremndous popularity in recent years. This paper reviews the recent developments in the variance-ratio(VR) tests of the random walk in the foreign exchange rates. We review the empirical tests on the random walks and present the conventional individual and multiple VR tests as well as their improved modifications based on power-transformed statistics, rank and sign test, bootstrap methods, among others. The use of the VR Statistics can be advantageous when testing against several interesting alternatives to the random walk model, most notable those hypotheses associated with mean reversion. We did not deal with the possible presence of structural breaks, due to financial or economical events, which can affect the VR tests.