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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
The inclusion of a constant term premium indicates that there may be possible sources of deviation from the rate structure that would be predicted by the unbiased expectations theory. Two factors might in principle be present in the interbank market that would account for this term premium, namely, liquidity preference and hedging behaviour.