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The Rationality of the Colombian Exchange Market

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Abstract:

This research analyzes the way agents participating in the Colombian exchange market form their expectations and how they arrive at an equilibrium price. The forward exchange rate was used as an approximation of the expected spot rate, implying the necessity to explain how its price is determined. Monte Carlo techniques and three tests of the Forward Foreign Exchange Market Efficiency Hypothesis are conducted. Six hypotheses of behavior were tested, from static to rational expectations and from risk neutrality to risk premium and/or transaction costs. Weekly data from January 1997 to January 2006 presented signs of rational and adaptative expectations, together with risk neutrality.

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Global Financial Crisis and Policies

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FuenteSSRN Electronic Journal
Cuartil año de publicaciónNo disponible
VolumenNo disponible
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ISSN1556-5068

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