Graduate School of Business, University of Chicago, and Sloan School of Management, M.I.T., Cambridge, Massachusetts, respectively.
Rational Expectations and Risk Premia in Forward Markets: Primary Metals at the London Metals Exchange
Article first published online: 30 APR 2012
1982 The American Finance Association
The Journal of Finance
Volume 37, Issue 5, pages 1199–1207, December 1982
How to Cite
HSIEH, D. A. and KULATILAKA, N. (1982), Rational Expectations and Risk Premia in Forward Markets: Primary Metals at the London Metals Exchange. The Journal of Finance, 37: 1199–1207. doi: 10.1111/j.1540-6261.1982.tb03612.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper tests whether forward prices equal the traders' expectations of the future spot prices at maturity, under two different models of expectations formation: full information rational expectations and incomplete information mechanical forecasting rule. The tests are performed, over the period January 1970 through September 1980, on the forward markets for the primary metals—copper, tin, lead, and zinc-traded in the London Metals Exchange. We find evidence consistent with the existence of time varying risk premia.