The "Speculative Efficiency" Hypothesis / John F. O. Bilson.

Format:

Book

Author/Creator:

Bilson, John F. O.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0474.

NBER working paper series no. w0474

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1980.

Summary:

The hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets. This paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact, the term "speculative efficiency" is used to characterize the state envisaged under the hypothesis. If a market is subject to efficient speculation, the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price. The expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model. Although the paper is primarily concerned with testing this hypothesis in the foreign exchange market, the methodology introduced in the paper is of general application to all futures markets.

Notes:

Print version record

April 1980.