Efficiency in the Peseta Forward Exchange Rate Market

Juan Ayuso, Juan Dolado and Simon Sosvilla-Rivero

No 627, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Cointegration; Efficient Markets; Exchange Rates; Risk Premiums (search for similar items in EconPapers)
Date: 1992-02
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