Testing the Interest Rate Parity and Efficient Market Hypothesis for Emerging Market Economies

In this study, the long-run validity of the interest rate parity and efficient market hypothesis is tested for quarterly periods 2003Q1-2015Q4 for 14 emerging market economics. Time series and panel data analysis were applied for the interest rate parity model which uncovered version was used. And time series analysis were applied for the efficient market hypothesis which semi-strong form was used. Findings from the current study showed us that interest rate parity, that explaining the relationship between interest rate and exchange rate and reflect the asset market conditions, and efficient market hypothesis does not hold for these countries. This leads to reduction in the foreseeability of exchange rates due to the negative effects of global financial markets that changes in macroeconomic policies of emerging market economies