SOME EVIDENCE ON THE EFFICIENCY OF THE FORWARD MARKET FOR FOREIGN-EXCHANGE FROM MONTE-CARLO EXPERIMENTS

A Monte-Carlo approach is used to provide new insights into tests of t he forward foreign exchange marker efficiency hypothesis (FMEH). A who le range of alternative hypotheses regarding price determination in th e forward market is examined for the $/DM case, including different ex pectations schemes, a risk premium model derived from international as set pricing theory and the novel idea that the empirical evidence on t he FMEH is the result of intervention by monetary authorities. The lat ter hypothesis as well as the hypothesis that expectations are formed in a static manner rather than rational appear to work the best.