Does a 'Correct' Parameter Estimate Tell a Better Story About Foreign Exchange Market Efficiency?

This paper demonstrates that the estimated parameters in previous research, with wrong signs and wrong sizes, do not indicate market inefficiency and market behaviour as they appear to. In the real world where forecasting errors are substantially large, a correct or an unreasonable estimate of the mean value of the exchange rate change renders almost identical results. The reasons why empirical studies usually produce wrong parameter estimates instead of correct ones are further analysed. It has been shown that any numbers can emerge for the estimate of the slope parameter using logarithmically transformed data, while the parameter is perfectly correct without logarithmic transformations of data