Forward exchange rate unbiasedness is rejected in tests from the current floating exchange rate era. This paper surveys advances in this area since the publication of Hodrick's (1987) survey. It documents that the change in the future exchange rate is generally negatively related to the forward discount. Properties of the expected forward forecast error are reviewed. Issues such as the relation of uncovered interest parity to real interest parity, and the implications of uncovered interest parity for cointegration of various quantities are discussed. The modeling and testing for risk premiums is surveyed. Included in this area are tests of the consumption CAPM, tests of the latent variable model, and portfolio-balance models of risk premiums. General equilibrium models of the risk premium are examined and their empirical implications explored. The survey does not cover the important areas of learning and peso problems, tests of rational expectations based on survey data, or the models of irrational expectations and speculative bubbles.

https://papers.ssrn.com/sol3/Delivery.cfm/nber_w5312.pdf?abstractid=225376&mirid=1

The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence

https://www.ssc.wisc.edu/~cengel/PublishedPapers/RiskPremiumSurvey.pdf

The forward discount anomaly and the risk premium: A survey of recent evidence

This study uses unit root and cointegration tests to examine the relationships among the stock markets in Hong Kong, South Korea, Singapore, Taiwan, Japan, and the United States. All the stock prices are analyzed both individually and collectively to test for international market efficiency. Unit roots in stock prices are found. Pairwise and higher-order cointegration tests indicate that there is no evidence of cointegration among the stock prices. The findings suggest that the stock prices in major Asian markets and the United States are weak-form efficient individually and collectively in the long run. It also implies that international diversification among the markets is effective.

An Empirical Analysis of Stock Prices in Major Asian Markets and the United States

Cointegration and market efficiency

International trade models often postulate the existence of a representative price, i.e., the price which prevails at all markets. This is known as the "Law of One Price." In this paper, the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs. The empirical evidence suggests that, in most cases, the law of one price cannot be rejected asa maintained hypothesis. Furthermore, for the remaining cases transaction costs seem to cause the failure.

https://www.jstor.org/stable/pdfplus/1242454.pdf

Mark Coleman

Papers

Cointegration-based tests of daily foreign exchange market efficiency