Working Paper: NBER ID: w0843
Authors: David A. Hsieh
Abstract: This paper tests the hypothesis that traders have rational expeatations and charge no risk premium in the forward exchange market. It uses a statistical procedure which is consistent under a large class of heteroscedasticity, and a set of data which takes into account the institutional features of the forward exchange market. The results show that inferences using this procedure are very different from those using the standard assumption of homoscedasticity.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| forecast error (C53) | correlation with known variables (C29) |
| forecast error (C53) | rejection of simple efficiency hypothesis (D29) |
| variables in traders' information set (D89) | forecast error (C53) |
| forward rate error (E43) | zero mean and uncorrelated with known information (C29) |
| traders' rational expectations (D84) | forecast error (C53) |