Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis
This paper examines the hypothesis that the expected rate of return to speculation in the forward foreign exchange market is zero; that is, the logarithm of the forward exchange rate is the market's conditional expectation of the logarithm of the future spot rate. A new…
# Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis
> OpenAlex Metadata Hub · https://openalex.org/W2093503007
## Bibliographic
- **DOI:** 10.1086/260910
- **Year:** 1980
- **Citations:** 2191
- **Open Access:** No (closed)
- **License:** —
- **Source:** https://doi.org/10.1086/260910
## Authors
- Lars Peter Hansen
- Robert J. Hodrick
## Abstract
This paper examines the hypothesis that the expected rate of return to speculation in the forward foreign exchange market is zero; that is, the logarithm of the forward exchange rate is the market's conditional expectation of the logarithm of the future spot rate. A new computationally tractable econometric methodology for examining restrictions on a k-step-ahead forecasting equation is employed. Using data sampled more finely than the forecast interval, we are able to reject the simple market efficiency hypothesis for exchange rates from the 1970s and the 1920s. For the modern experience, the tests are also inconsistent with several alternative hypotheses which typically characterize the relationship between spot and forward exchange rates.
## Keywords
LIBOR market model, Forward rate, Speculation, Econometrics, Economics, Exchange rate, Logarithm, Foreign exchange market, Spot contract, Foreign exchange, Econometric model, Financial economics, Interest rate, Mathematics, Monetary economics, Macroeconomics, Futures contract
## Concepts
- LIBOR market model
- Forward rate
- Speculation
- Econometrics
- Economics
- Exchange rate
- Logarithm
- Foreign exchange market
- Spot contract
- Foreign exchange
- Econometric model
- Financial economics
- Interest rate
- Mathematics
- Monetary economics
- Macroeconomics
- Futures contract
- Volatility (finance)
- Mathematical analysis
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*Metadata only — full text not imported unless Open Access license permits.*
Bài “Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis” được TradingBase chuyển thành Knowledge Product cho trader — không phải trang đọc abstract OpenAlex.
Tóm lược học thuật (đã diễn giải): This paper examines the hypothesis that the expected rate of return to speculation in the forward foreign exchange market is zero; that is, the logarithm of the forward exchange rate is the market's conditional expectation of the logarithm of the future spot rate. A new computationally tractable econometric methodology for examining restrictions on a k-step-ahead forecasting equation is employed. Using data sampled more finely than the forecast interval, we are able to reject the simple market efficiency hypothesis for exchange rates from the 1970s and the 1920s. For the modern experience, the tests are also inconsistent with several alternative hypotheses which typically characterize the relationship between spot and forward exchange rates.
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1. This paper examines the hypothesis that the expected rate of return to speculation in the forward foreign exchange market is zero; that is, the logarithm of the forward exchange rate is the market's conditional expectation of the logarithm of the future spot rate.
2. A new computationally tractable econometric methodology for examining restrictions on a k-step-ahead forecasting equation is employed.
3. Using data sampled more finely than the forecast interval, we are able to reject the simple market efficiency hypothesis for exchange rates from the 1970s and the 1920s.
4. For the modern experience, the tests are also inconsistent with several alternative hypotheses which typically characterize the relationship between spot and forward exchange rates.
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