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Heterogeneous expectations and tests of efficiency in the yen/dollar forward exchange rate market

  • Elliott, Graham
  • Ito, Takatoshi

This paper examines the efficiency of the forward yan/dollar market using micro survey data. Conventional tests of unbiasedness do not correspond directly to the zero-profit condition. Instead, we use the survey data to calculate potential profits of individual forecasters based on a natural trading rule.We find that although the survey data are not the best predictor of future spot rates in terms of typical mean square forecast error criteria, the survey data can be used to obtain on average positive profits. However, these profits generated by a trading rule using regression forecasts. The profits are found to be correlated with risk type variables but not other available information.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 43 (1999)
Issue (Month): 2 (April)
Pages: 435-456

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Handle: RePEc:eee:moneco:v:43:y:1999:i:2:p:435-456
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  19. Jeffrey A. Frankel & Kenneth A. Froot, 1985. "Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations," NBER Working Papers 1672, National Bureau of Economic Research, Inc.
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