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.
|Date of creation:||Apr 1980|
|Publication status:||published as Bilson, John F.O. "The 'Speculative Efficiency' Hypothesis." Journal of Business, Vol. 54, No. 3, (June 1981), pp. 435-451.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Goodman, Stephen H, 1979. "Foreign Exchange Rate Forecasting Techniques: Implications for Business and Policy," Journal of Finance, American Finance Association, vol. 34(2), pages 415-427, May.
- Bilson, John F O, 1981.
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The Journal of Business,
University of Chicago Press, vol. 54(3), pages 435-451, July.
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404, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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- Geweke, John F & Feige, Edgar L, 1979. "Some Joint Tests of the Efficiency of Markets for Forward Foreign Exchange," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 334-341, August.
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ULB Institutional Repository
2013/11356, ULB -- Universite Libre de Bruxelles.
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