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Unbiased Predictor

What is 'Unbiased Predictor'

The notion that the current market price of a physical commodity (its cash price or currency) will be equal to its anticipated future price based on the market's forward rate. Like anything that relies on interest rate projections, this outlook can change as economic conditions change.

Explaining 'Unbiased Predictor'

In statistical terms, "bias" is generally considered to be the variance between a prediction and the actual outcome, so an unbiased predictor is one that, one average, closely forecasts the future behavior of the variable under consideration. For example, if a futures contract is considered an unbiased predictor of oil prices, then when the contract expires the price of oil should correspond with the anticipated price.

Unbiased Predictor FAQ

What does it mean for an estimator to be unbiased?

What is an Unbiased Estimator? An unbiased estimator is a measure for approximating a population parameter. In other words, if the estimator (i.e. the sample mean) equals the parameter (i.e. the population mean), it means it's an unbiased estimator.

How do you show an estimator is unbiased?

Z,A parameter's expected value in an unbiased estimator is equal to its true value. An unbiased estimator estimates parameter that are approximately correct.

Why sample mean is unbiased estimator?

The sample mean is a random variable that estimates the population mean. The expected value of the sample mean and the population mean µ are equal. Therefore, the sample mean is an unbiased estimator of the population mean.

Why are unbiased estimators important?

The theory of unbiased estimation is very important to the theory of point estimation, since in reality, it is important that the unbiased estimator have no systematical errors.

What is interest rate parity with examples?

A currency with lower interest rates will trade at a forward premium compared to a currency with a higher interest rate. For example, the U.S. dollar trades at a forward premium against the Canadian dollar while the Canadian dollar trades at a forward discount against the U.S. dollar.

Further Reading


Forward premiums as unbiased predictors of future currency depreciation: a non-parametric analysis
www.sciencedirect.com [PDF]
… is true, then in a given sample the forward premium should correctly predict the future spot … hypothesis that the forward premium contains the wrong information in predicting the direction of … The hypothesis that the forward exchange rate premium is an unbiased predictor of future …

Forward foreign exchange rates as an unbiased predictor of future spot rates: The empirical evidenceForward foreign exchange rates as an unbiased predictor of future spot rates: The empirical evidence
www.indianjournals.com [PDF]
… is true, then in a given sample the forward premium should correctly predict the future spot … hypothesis that the forward premium contains the wrong information in predicting the direction of … The hypothesis that the forward exchange rate premium is an unbiased predictor of future …

Google Internet search activity and volatility prediction in the market for foreign currencyGoogle Internet search activity and volatility prediction in the market for foreign currency
www.sciencedirect.com [PDF]
… is true, then in a given sample the forward premium should correctly predict the future spot … hypothesis that the forward premium contains the wrong information in predicting the direction of … The hypothesis that the forward exchange rate premium is an unbiased predictor of future …

Non-informative tests of the unbiased forward exchange rateNon-informative tests of the unbiased forward exchange rate
www.jstor.org [PDF]
… is true, then in a given sample the forward premium should correctly predict the future spot … hypothesis that the forward premium contains the wrong information in predicting the direction of … The hypothesis that the forward exchange rate premium is an unbiased predictor of future …

Is the IPO pricing process efficient?Is the IPO pricing process efficient?
www.sciencedirect.com [PDF]
… is true, then in a given sample the forward premium should correctly predict the future spot … hypothesis that the forward premium contains the wrong information in predicting the direction of … The hypothesis that the forward exchange rate premium is an unbiased predictor of future …

The 'efficiency'of the London Metal Exchange: a test with overlapping and non-overlapping dataThe 'efficiency'of the London Metal Exchange: a test with overlapping and non-overlapping data
www.sciencedirect.com [PDF]
… is true, then in a given sample the forward premium should correctly predict the future spot … hypothesis that the forward premium contains the wrong information in predicting the direction of … The hypothesis that the forward exchange rate premium is an unbiased predictor of future …

Interest rate risk management with futures for financial intermediariesInterest rate risk management with futures for financial intermediaries
www.tandfonline.com [PDF]
… is true, then in a given sample the forward premium should correctly predict the future spot … hypothesis that the forward premium contains the wrong information in predicting the direction of … The hypothesis that the forward exchange rate premium is an unbiased predictor of future …



Q&A About Unbiased Predictor


What is an unbiased estimator?

An unbiased estimator is an estimator that has a zero bias.

What is an unbiased predictor?

An unbiased predictor is a forecast that closely predicts the future behavior of a variable.

What are some examples of biased estimators?

Some examples include using the average instead of the median, or using a sample with too few observations to represent a population.

What does the term "bias" mean in statistics?

Bias means difference between expected value and true value of parameter being estimated.

When should futures contracts expire?

Futures contracts expire at some point in time in the future.

What do futures contracts predict?

Futures contracts predict oil prices.

What does "bias" mean in statistical terms?

Bias is considered to be the variance between a prediction and the actual outcome.

Are there any advantages to using biased estimators over unbiased ones?

Yes, there are advantages to using biased estimators over unbiased ones. For example, if you have only one observation from your data set, then it would be impossible for you to use an unbiased estimate because you do not have enough information about your data set. In this case, it would be better for you to use a biased estimate so that you can make some sort of prediction about what your data set might look like in the future based on what little information that you do have.

How can you tell if something is an unbiased predictor?

If it corresponds with the anticipated price when the contract expires, then it would be considered an unbiased predictor.