Forward and futures prices: evidence from the foreign exchange markets

Article Abstract:

Cornell and Reinganum (1981), hereafter CR, report that price differentials for future contracts and forward contracts are statistically insignificant in foreign exchange markets. Based on this finding, CR conclude that marking-to-market is insignificant in the formulation of currency futures prices. This note identifies two potential concerns with the CR tests. One problem relates to the timing of delivery dates for "matched" contracts. A second problem relates to the time period for the CR study. Was how that correcting for these problems does not affect the overall conclusions of the CR study; marking-to-market does not appear to have a significant effect on currency futures prices. (Reprinted by permission of the publisher.)

Prices and rates, Foreign exchange, Foreign exchange rates, Foreign exchange market

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Are real interest rates equal across countries? An empirical investigation of international parity conditions

Article Abstract:

Empirical tests of the equality of real interest rates across countries provide evidence that strongly rejects the hypothesis of the equality of real euro rates across countries. The joint hypothesis of uncovered interest parity and ex ante relative purchasing power parity (PPP), or the lack of bias of forward rate forecasts and ex ante relative PPP, are also rejected. The evidence suggests that it is good to studying open economy macro models which allow domestic real rates to differ from world real rates, time varying risk premiums in the forward market, or deviations from ex ante relative PPP.

Analysis, International aspects, Purchasing power

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Can futures market data be used to understand the behavior of real interest rates?

Article Abstract:

This paper examines whether futures market data can be used to understand the behavior of real interest rates. Several ways of examining the data indicate that futures market data are not particularly informative about real interest rates. Not only does this evidence cast some doubt on results in previous research that makes use of futures market data to draw inferences about real interest rates, but it also indicates that future research on real interest rates may need to turn to a different line of attack. (Reprinted by permission of the publisher.)

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