A Note on the Size of Forward Exchange Rate Bias


  •  Guan Jun Wang    

Abstract

In this short note, we argue that the rejection of forward exchange rate unbiasedness hypothesis (FRUH) does not necessary mean that forward exchange rates have little effect as forecasts of future spot exchange rates as claimed in the literature. Due to symmetric feature of foreign exchange markets, we conjecture the size of forward exchange rate bias should be fairly small. We combine theoretical analysis with the observation of empirical results to validate this conjecture.



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