Testing for Unbiasedness in Forward Markets
This paper is concerned with whether forward exchange rates are unbiased predictors of realized future spot rates. In common with recent literature in the area, the cointegration methodology is employed. In contrast with much of that literature, the main emphasis is on making inferences on the estimated parameters. In this connection, the conditions for risk neutrality and efficiency in forward markets are derived. The Johansen procedure is applied to monthly data for the United Kingdom and Germany. It is concluded that there is evidence for small but stationary risk even in the long run. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester
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Volume (Year): 62 (1994)
Issue (Month): 0 (Suppl.)
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