A Composite Efficiency Index for ASEAN Foreign Exchange Markets

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DOI: https://doi.org/10.28924/2291-8639-23-2025-298
Published: Nov 28, 2025
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Tran Trong Huynh, Thi Thu Hong Dinh, A Composite Efficiency Index for ASEAN Foreign Exchange Markets, Int. J. Anal. Appl., 23 (2025), 298.

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Tran Trong Huynh, Thi Thu Hong Dinh

Abstract

The Efficient Market Hypothesis (EMH) has long been a central paradigm in finance, yet mounting evidence suggests that market efficiency is neither uniform across assets nor constant over time. This study examines the dynamics of foreign exchange (FX) market efficiency in six ASEAN economies (Vietnam, Thailand, Indonesia, Malaysia, the Philippines, and Singapore) over the period January 2000 to August 2025. Using daily bilateral exchange rates against the U.S. dollar, we construct twelve sub-indices that capture serial dependence, volatility clustering, distributional anomalies, and microstructure frictions. These standardized measures are then aggregated through principal component analysis (PCA) into a Composite Efficiency Index (CEI), complemented by an equal-weighted average as a robustness check. The empirical results reveal three key findings. First, inefficiency has declined significantly over time, consistent with the Adaptive Market Hypothesis (AMH), but with pronounced spikes during global and local crises such as the Global Financial Crisis and the COVID-19 pandemic. Second, substantial heterogeneity is observed across markets: Singapore emerges as the most efficient, while Vietnam is persistently the least efficient. Third, changes in CEI predict higher-order return dependencies, though not mean returns themselves, underscoring its validity as a forward-looking measure. These results provide new insights into the evolving nature of FX efficiency, offering both academic contributions and policy relevance.

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