Journal of Financial Economics Vol. 5 No. 1 1977
Spot rates, forward rates and exchange market efficiency
Abstract
This paper examines the relationship between forward exchange rates and subsequently observed spot rates. No evidence is found for a liquidity premium on forward exchange, indicating that the forward rate can be used as a proxy of the market's expectations and that open exchange positions involve little systematic risk. It is also shown that forward exhange is priced as if the exchange rate could be characterized by a diffusion process with a trend, although there is some evidence such a process does not adequately characterize the exchange rate in all cases.
- DOI
- 10.1016/0304-405x(77)90029-0
- Volume
- 5
- Issue
- 1
- Pages
- 55-65
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref