EXCHANGE-RATE UNCERTAINTY AND THE EFFICIENCY OF THE FORWARD MARKET FOR FOREIGN-EXCHANGE

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.