Exchange-rate return predictability and the adaptive markets hypothesis: Evidence from major foreign exchange rates

► We examine return predictability of major foreign exchange rates. ► We use alternative tests for the martingale difference hypothesis based on linear and nonlinear dependence. ► We evaluate time-varying return predictability with fixed-length moving windows. ► Episodes of return predictability occur depending on changing market conditions. ► The results are consistent with the implications of the adaptive markets hypothesis.