NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The "Speculative Efficiency" Hypothesis

John F. O. Bilson

NBER Working Paper No. 474 (Also Reprint No. r0211)
Issued in April 1980
NBER Program(s):   ITI   IFM

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.

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Document Object Identifier (DOI): 10.3386/w0474

Published: Bilson, John F.O. "The 'Speculative Efficiency' Hypothesis." Journal of Business, Vol. 54, No. 3, (June 1981), pp. 435-451. citation courtesy of

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