Speculative efficiency and foreign currency futures: A focus on selected countries in North America, Western Europe, and the Pacific

Abstract

This study extends the investigation of speculative efficiency and unbiasedness in the forward foreign exchange market to the foreign currency futures market. Consistent with the normal backwardation/contango hypothesis, results show that futures rates are not unbiased forecasts of future spot rates. A trading rule based on these results reveals attractive speculative opportunities which appear too large to be cccounted for by risk aversion of investors.