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Speculation in the Forward Exchange Market : The Canadian Dollar Since 1970

Published online by Cambridge University Press:  17 August 2016

Rolf Mirus
Rolf Mirus*
Affiliation:
Faculty of Business Administration and CommerceUniversity of Alberta
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Extract

This paper presents empirical results on the influence of speculation in the forward exchange market since the floating of the Canadian dollar in June 1970.

Time series analysis is applied to monthly observations on the spot exchange rate, and it is found that the market for foreign exchange is efficient in that the exchange rate conforms to the random-walk model. This finding is used to generate speculators’ forecasts of the future spot exchange rate. On the basis of these forecasts measurement of the proportional importance of speculation in the determination of the forward exchange rate becomes possible.

The results, contrary to those of Kesselman (1971), but similar to those of Stoll (1968), indicate a minor role for speculation in the forward market. One implication is that, for given changes in expectations, the fluctuations in the forward exchange rate are likely to be small, and the resultant capital movements are likely to have a minor impact on the balance of payments.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 41 , Issue 4 , December 1975 , pp. 303 - 311
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1975 

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References

REFERENCES

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