Tests of Unbiasedness in the Foreign Exchange Futures Markets: An Examination of Price Limits and Conditional Heteroscedasticity
AbstractDaily price limits, an institutional feature of futures markets, truncate the distribution of price changes and dampen the variance. Previous tests of the unbiasedness hypothesis using daily foreign exchange futures prices have accounted for the observed conditional heteroscedasticity in the data but have neglected to adequately incorporate the additional effects of daily price limits. This article examines both time variation and truncation of futures price changes. Empirical results suggest that previous rejections of the unbiasedness hypothesis in the foreign exchange futures market are not substantively altered by inclusion of price limits but may be attributed to potentially biased testing procedures. Copyright 1993 by University of Chicago Press.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 66 (1993)
Issue (Month): 3 (July)
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- Dark, Jonathan, 2012. "Will tighter futures price limits decrease hedge effectiveness?," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2717-2728.
- Levy, Tamir & Qadan, Mahmod & Yagil, Joseph, 2013. "Predicting the limit-hit frequency in futures contracts," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 141-148.
- Kumar, Satish & Trück, Stefan, 2014. "Unbiasedness and risk premiums in the Indian currency futures market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 13-32.
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- Shen, Chung-Hua & Wang, Lee-Rong, 1998. "Daily serial correlation, trading volume and price limits: Evidence from the Taiwan stock market," Pacific-Basin Finance Journal, Elsevier, vol. 6(3-4), pages 251-273, August.
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