Unbiased expectations hypothesis

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Unbiased expectations hypothesis

Theory that forward exchange rates are unbiased predictors of future spot rates. See Forward parity.

Unbiased Expectations Hypothesis

In foreign exchange, a theory that forward exchange rates for delivery at some future date are equal to the spot rates for that date. The hypothesis only functions in the absence of a risk premium. Critics contend that the unbiased expectations evidence shows that unbiased expectations do not occur in actual trading. It is also called an unbiased predictor.
References in periodicals archive ?
The importance of unbiased expectations of economic conditions when estimating credit losses could be a challenge to the new standard's credibility, which auditors will have a crucial role in addressing.
The longer-term gold (45- and 60-day) and silver (30-, 45-, and 60-day) futures reject an unbiased expectations hypothesis.
Unbiased expectations would require the expected value of the intercept coefficient o f such a regression to equal zero and the slope coefficient to equal one.
The gold results show that the 15- and 30-day futures satisfy unbiased expectations on the coefficients, whereas the 45- and 60-day futures do not, regardless of the delivery date (Tables 1-3).
The silver results reject unbiased expectations more often than gold.
The copper results most often reject unbiased expectations when the values of the variables are converted to natural logarithms.
Overall, an unbiased expectations hypothesis, with intercept of zero and slope of one, is satisfied for the near-term (15- and 30-day) gold futures, regardless of delivery date.
Comparative statics results can be developed for this case of unbiased expectations.