J. Zietz, SOME EVIDENCE ON THE EFFICIENCY OF THE FORWARD MARKET FOR FOREIGN-EXCHANGE FROM MONTE-CARLO EXPERIMENTS, Economic journal, 105(433), 1995, pp. 1471-1487
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.