The findings of this study support others which examine financial markets. The time series distributions are not normal; they are stable Paretian. The forward market for foreign exchange is not random; but neither is it inefficient based on the weak form model.

The study also shows that there were patterns in the time series of rates of return on forward contracts. These were low level autocorrelations and were not stable through time. The patterns were short and changed throughout the time period. Using several testing techniques, the hypothesis that the forward is inefficient was rejected. Several nonparametric tests and Box-Jenkins time series analysis were used. These show that the time series of rates of return on forward contracts, while not a random walk, are not inefficient at the weak form level.

Intertemporal speculation, the act of speculating between forward maturities, was defined in the paper. The existence of profitability using this technique was found to be significantly different from zero, but less than the return on short-term U. S. government securities. Therefore, even though the technique is available for forward market participants, the return is not commensurate with the level of risk incurred.

The study employed daily spot and forward exchange rates from March 1973 to June 1976 for the following currencies: U.S. to U.K.; U.S. to Swiss Franc; U.S. to German Mark; U.S. to Canadian Dollar; U.K. to German Mark; and U.K. to Canadian Dollar. The rate of return on forward contracts was defined to be the difference between the forward rate at time t and the spot rate which exists upon maturation of that forward contract expressed as a percentage of the spot rate. The distribution of these rates of return was shown to more closely approximate the stable Paretian distribution than the normal distribution. This was true for the spot rate and forward rate distributions as well. Since stable Paretian distributions have no defined variance, an alternative measure of disbursion should be established to replace the sample standard deviation or variance.

This study is devoted to an examination of the efficiency and characteristics of the forward market for foreign exchange. Here, efficiency implies that current market prices or rates incorporate any information embodied in the pattern of past prices or rates. The characteristics of the forward market examined include the distribution of rates of return, as well as the relationship of forward exchange rates of different maturities.

The percentage premia of different forward rates, relative to the spot rate, were examined in the paper. It was found that relative premia decline as time to maturity increases. Furthermore, the premia decrease at a decreasing rate. The slope between 30 and 60 day premia is more steep than the slope between 60 and 90 day premia. For firms using the forward market to cover exchange rate risk, the implication is that the cost of forward cover is decreased as forward maturity is increased. Thus a reward exists for good forward planning.