TY  - JOUR
AU  - Elliott,Graham
AU  - Ito,Takatoshi
TI  - Heterogeneous Expectations and Tests of Efficiency in the Yen/Dollar    Forward Foreign Exchange Rate Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5376
PY  - 1995
Y2  - December 1995
UR  - http://www.nber.org/papers/w5376
L1  - http://www.nber.org/papers/w5376.pdf
N1  - Author contact info:
Graham Elliott
Department of Economics
UC, San Diego
9500 Gilman Drive
La Jolla, CA  92093
E-Mail: gelliott@weber.ucsd.edu

Takatoshi Ito
Graduate School of Economics
University of Tokyo
7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
JAPAN
Tel: 81-3-5841-5608
Fax: 81-3-5841-5521
E-Mail: tito@e.u-tokyo.ac.jp
AB  - This paper examines the efficiency of the forward yen/dollar market using micro survey data.  We first argue that the conventional tests of efficiency (unbiasedness) of the forward rate or of the survey forecasts do not correspond directly to the zero-profit condition.  Instead, we use the survey data to calculate directly potential profits of individual forecasters based on a natural trading rule.  We find that although the survey data are not the best predictor of future spot rate in terms of typical mean square forecast error criteria, the survey data can be used to obtain on average positive profits.  However, these profits are small and highly variable.  We also examine profits generated by a trading rule using regression forecasts, where forward premium is an explanatory variable.  These profits are also small and highly variable.
ER  -