SFB 303 Discussion Paper No. B-237

Author: Schmidt, Roland
Title: Why the Forward Rate is a Biased Predictor of the Future Spot Rate if Investors are Risk Neutral
Abstract: The paper shows within the mean-variance model for the open economy that the forward rate is an unbiased predictor of the future spot rate only if investors have a constant rate of relative risk aversion equalling one, but that inflation risk is harmful for any degree of risk aversion.
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Creation-Date: January 1993
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