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Forward Rates As Predictors of Future Interest Rates in the Eurocurrency Market

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  • Jean-Claude Cosset

    (Université Laval)

Abstract

This paper examines the ability of forward rates that are implicit in the term structure of Eurocurrency interest rates to predict future interest rates and to incorporate the information in past interest rates. The findings suggest that forward rates are unbiased estimators of future interest rates but are not optimal predictors of future interest rates. Further evidence does not provide support for the presence of a systematic risk premium on forward rates. The findings of this study suggest also that the Eurocurrency market is efficient in incorporating information contained in the history of interest rates into the forward rate. In addition, this paper shows that, in conformity with the efficient market hypothesis, errors of prediction based on forward rates are not related to past changes of interest rates.© 1982 JIBS. Journal of International Business Studies (1982) 13, 71–83

Suggested Citation

  • Jean-Claude Cosset, 1982. "Forward Rates As Predictors of Future Interest Rates in the Eurocurrency Market," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 13(3), pages 71-83, September.
    • Handle: RePEc:pal:jintbs:v:13:y:1982:i:3:p:71-83
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    Cited by:

    1. Fred R. Kaen & Evangelos O. Simos & George A. Hachey, 1984. "The Response Of Forward Exchange Rates To Interest Rate Forecasting Errors," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 7(4), pages 281-290, December.

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