The theoretical question of whether futures prices are unbiased predictors of future spot rates focuses on: A) the correlation between interest rate changes and asset price changes. B) whether futures markets are efficient. C) the relation between asset cash flows and the risk-free rate of interest. D) whether futures buyers are taking on asset owners price risk Under the view that futures markets are primarily a mechanism for short hedgers and long hedgers to offset their respective asset price risks: A) forward prices will be greater than futures prices. B) futures prices will be unbiased predictors of future spot rates. C) expected future asset prices are less than the futures prices. D) futures prices are greater than the expected price of the asset at contract expiration
I am purely guessing C, C
Correct Ans is D and B.
Good questions. Can you post explanations please?
Late but D, B
zombie basically what it says is: if the participants are hedgers they just want to obtain a ‘fair’-expected price for the futures contract. they enter in the contract to hedge risk not speculate on price-therefore it will be an unbiased predicion of future prices on the other hand if speculators enter they will need a risk premium to enter in the contract - therefore the future price will be a biased perspective of expected prices
To expand… If both sides are hedgers than all the risk is immunized for both parties at inception. So no one demands any risk premiums. On the other hand if you are a speculator and you are taking on somebody else’s price risk then you need to be compensated for that. --> lead to biased persperctive Emperical studies show the later.