An Empirical Analysis of Ex Ante Profits from Forward Speculation in Foreign Exchange Markets
This paper constructs a time-series band for ex ante profits from forward speculation and examines the permanent components of the median of the band for six different exchange markets. The unpredictability of ex ante profits is rejected using nonparametric tests. Deviations of ex ante profits from forward premia are attributed to deviations of nominal exchange rates from martingale processes. It is shown that movements in the terms of trade are responsible for most of the variability and serial correlation properties of ex ante profits. Copyright 1991 by MIT Press.
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Volume (Year): 73 (1991)
Issue (Month): 3 (August)
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