Forward and Futures Prices: Evidence from the Foreign Exchange Markets

Authors

  • CAROLYN W. CHANG,

  • JACK S. K. CHANG

    Search for more papers by this author
    • C. Chang is from California State University, Fullerton and University of Southern California. J. S. K. Chang is from California State University, Los Angeles. We wish to thank Lawrence Harris and Mark Weinstein for helpful comments on an earlier version of this note. We are also grateful for constructive suggestions made by the Journal editors, Stephen Buser and René Stulz, and an anonymous referee. Any remaining errors are ours.


ABSTRACT

Cornell and Reinganum (1981), hereafter CR, report that price differentials for future contracts and forward contracts are statistically insignificant in foreign exchange markets. Based on this finding, CR conclude that marking-to-market is insignificant in the formulation of currency futures prices. This note identifies two potential concerns with the CR tests. One problem relates to the timing of delivery dates for “matched” contracts. A second problem relates to the time period for the CR study. We show that correcting for these problems does not affect the overall conclusions of the CR study; marking-to-market does not appear to have a significant effect on currency futures prices.

Ancillary