Foreign Currency Futures
The theoretical nature of risk premiums in foreign currency futures markets is derived and studied empirically. Estimation problems encountered in using futures data are discussed. Since forward rates and futures prices are demonstrated to be approximately equal, and because risk premiums in forward markets are highly variable, consistency of the data requires time variation in daily risk premiums in the futures market. Unbiasedness of daily futures prices as predictors of the following day's futures price is rejected for all currencies. Reconciliation of daily and monthly data requires positive serial correlation in daily risk premiums.
Document Object Identifier (DOI): 10.3386/w1743
Published: Hodrick, Robert J. and Sanjay Srivastava. "Foreign Currency Futures," Journal of International Economics, Vol. 22, No. 1/2, Feb. 1987, pp. 1-24. citation courtesy of