DP627 Efficiency in the Peseta Forward Exchange Rate Market

Author(s): Juan Ayuso, Juan J. Dolado, Simón Sosvilla-Rivero
Publication Date: February 1992
Keyword(s): Cointegration, Efficient Markets, Exchange Rates, Risk Premiums
JEL(s): 211, 313, 431
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=627

This paper applies recent cointegration techniques to analyse whether the forward market for the peseta/US dollar is efficient in both the one-month and the three-month segments of the market. Under the assumption of rationality, the premiums are small and they suggest a possible linear relationship between the premium and the expiry date of the contract. As a by-product of the analysis, an explanation is offered for the conflicting results which have been obtained in testing forward market efficiency, when such efficiency is tested with series in levels or with the deviations thereof in relation to the current spot rates.