The "Speculative Efficiency" Hypothesis
The hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets. This paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact, the term "speculative efficiency" is used to characterize the state envisaged under the hypothesis. If a market is subject to efficient speculation, the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price. The expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model. Although the paper is primarily concerned with testing this hypothesis in the foreign exchange market, the methodology introduced in the paper is of general application to all futures markets.
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- Hakkio, Craig S, 1981.
"Expectations and the Forward Exchange Rate,"
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Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 663-78, October.
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- John F. O. Bilson, 1979. "Recent Developments in Monetary Models of Exchange Rate Determination (Evolution rÃ©cente des modÃ¨les monÃ©taires de dÃ©termination des taux de change) (Progreso reciente en el campo de los modelos m," IMF Staff Papers, Palgrave Macmillan, vol. 26(2), pages 201-223, June.
- Hakkio, Craig S., 1981.
"The term structure of the forward premium,"
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Elsevier, vol. 8(1), pages 41-58.
- Craig S. Hakkio, 1979. "The Term Structure of the Forward Premium," Discussion Papers 404, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Craig S. Hakkio, 1980. "The Term Structure of the Forward Premium," NBER Working Papers 0426, National Bureau of Economic Research, Inc.
- Bilson, John F O, 1981.
"The "Speculative Efficiency" Hypothesis,"
The Journal of Business,
University of Chicago Press, vol. 54(3), pages 435-51, July.
- Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June.
- Goodman, Stephen H, 1979. "Foreign Exchange Rate Forecasting Techniques: Implications for Business and Policy," Journal of Finance, American Finance Association, vol. 34(2), pages 415-27, May.
- Frankel, Jeffrey A., 1979. "The diversifiability of exchange risk," Journal of International Economics, Elsevier, vol. 9(3), pages 379-393, August.
- Ralph Tryon, 1979. "Testing for rational expectations in foreign exchange markets," International Finance Discussion Papers 139, Board of Governors of the Federal Reserve System (U.S.).
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