J. Zietz et G. Homaifar, EXCHANGE-RATE UNCERTAINTY AND THE EFFICIENCY OF THE FORWARD MARKET FOR FOREIGN-EXCHANGE, Weltwirtschaftliches Archiv, 130(3), 1994, pp. 461-475
Exchange Rate Uncertainty and the Efficiency of the Forward Market for
Foreign Exchange. - The paper investigates to what extent exchange ra
te uncertainty can account for the observed deviations from the forwar
d market efficiency hypothesis (FMEH). The empirical analysis employs
a simple varying parameter regression to allow uncertainty to modify t
he central parameters of the FMEH in a direct way. Uncertainty is prox
ied by significant exchange rate changes. The results indicate that th
ere is considerable support for the FMEH if one allows the intercept t
erm to vary over time.