Hostname: page-component-586b7cd67f-dlnhk Total loading time: 0 Render date: 2024-11-25T13:47:43.282Z Has data issue: false hasContentIssue false
  • English
  • Français

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
Get access

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 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Bank of Canada (1974). Review, various issues.Google Scholar
Box, G.E. and Jenkins, G.M. (1970) Time Series Analysis, Forecasting and Control(San Francisco).Google Scholar
Cochrane, D. and Orcutt, G.H. (1949) «Application of Least Squares Regression to Relationships Containing Autocorrelated Error Terms», Journal of the American Statistical Association, 44, 749–809.Google Scholar
Eastman, H.C. (1971) «The Hedging of Commercial Transactions Between U.S. and Canadian Residents» in Federal Reserve Bank of Boston : Canadian-United States Financial Relationships(Boston).Google Scholar
Fisher, L. (1959) «Determinants of Risk Premiums on Corporate Bonds», Journal of Political Economy, 67, 217–37.Google Scholar
Grubel, H.G.(1966) Foreign Exchange, Speculation, and the International Flow of Capital(Stanford).Google Scholar
Haas, R.D. (1974) «More Evidence on the Role of Speculation in the Canadian Forward Exchange Market», Canadian Journal of Economics, 7, 496–501.Google Scholar
Helliwell, J. (1969) «A Structural Model of the Foreign Exchange Market», Canadian Journal of Economics, 2, 90–103.Google Scholar
Kesselman, J. (1971) «The Role of Speculation in Forward-Rate Determination : The Canadian Flexible Dollar. 1953–1960», The Canadian Journal of Economics, 4, 279–98.Google Scholar
Nelson, C.R. (1973) Applied Time Series Analysis For Managerial Forecasting(San Francisco).Google Scholar
Stoll, H. (1968) «An Empirical Study of the Forward Exchange Market Under Fixed and Flexible Exchange Rate Systems», Canadian Journal of Economics, 1, 55–78.Google Scholar