The Role of Speculation in Forward-Rate Determination: The Canadian Flexible Dollar 1953-1960

The effectiveness of arbitrage and speculation in the crude oil futures market

“…(8) and (9). This is also the procedure adopted by economists examining this relationship in the foreign exchange market [see, for example, Kesselman (1971), Haas (1974), hlcCallum (1977 (14) is not distinguishable from eq. (1 1 ) .…”

“…The second point to be considered in this section is how to proxy the expectations variable, S f , which is the spot price expected to prevail at the time of the maturity of the futures contract. In this kind of analysis, several expectation formation mechanisms have been used: adaptive expectations [e.g., Stoll ( 1968)l; extrapolative and regressive expectations [e.g., Kesselman (1971) and Haas (1974)]; rational expectations [e.g., McCallum (1977) and Callier (1981)], Fisherian expectations [e.g., Kohlhagen (1979)] and ARIMA representation [e.g., Stokes and The basis (B) and the cost of carry (C).…”

Speculation and the Forward Foreign Exchange Rate: A Note

“…Traditionally, the reduced form of the model expresses the forward foreign exchange rate as a weighted average of the covered interest‐parity exchange rate on one hand and of the future spot rate expected to prevail at the maturity date of the forward contract on the other hand. Empirical work based on this reduced form is found in Stoll [6], Kesselman [4], Haas [3], and McCallum [5].…”

A Model of Exchange Rates and Capital Flows: The Canadian Floating Rate Experience

“…(12) Also since balance-of-payments equilibrium is required, equation (5) As noted above, the forward rate can be estimated by an equation based on the equilibrium conditions in the forward market that is well known in the literature (see for example, [5]). Thus the forward rate is a function of the expected spot rate, Se and the forward parity rate F*, which is defined as (14) where rd and rf are quarterly decimal values of Rd and Rf. The estimating equation for the forward rate then is F = bo + blF* + b2Se.…”

“…Inasmuch as the expectations variable is an unobservable phenomenon, specification of an expectations formation process is necessarily a controversial subject. Previous applications to the foreign exchange market have ranged from relatively naive use of an adaptive expectations mechanism whereby the observed (ex post) one-period-ahead spot rate is regressed on current and lagged values of the spot rate [22], the "dual mechanistic" approach, combining adaptive or regressive expectations with an extrapolative element [14,6], to the relatively sophisticated rational expectations, where it is assumed that speculators have full knowledge of the structure and stochastic properties of the underlying system [19]. Although the rational expectations approach conceptually is quite appealing, we believe that it may be unreasonable to impose it as a maintained hypothesis.…”