Are Foreign Exchange Market Forecasters "Rational"? Some Survey-Based Tests.

In this paper, a number of rationality tests are implemented using survey data on exchange rate expectations for four currencies (dollar-sterling, deutsche mark-dollar, yen-dollar, and Swiss franc-dollar). It is demonstrated, inter alia, that the survey expectations are biased, orthogonal to an information set consisting of lagged survey forecast errors, but not orthogonal to an information set consisting of lagged forward premiums. Copyright 1990 by Blackwell Publishers Ltd and The Victoria University of Manchester