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A loop diagram pedagogy: seeing the unseen in the forward market efficiency hypothesis

Boonlert Jitmaneeroj (School of Business, University of the Thai Chamber of Commerce, Bangkok, Thailand)

Managerial Finance

ISSN: 0307-4358

Article publication date: 7 January 2014

626

Abstract

Purpose

In an introductory finance course, business school students often report difficulty in dealing with several variables and regression equations in testing the forward market efficiency and its relevant hypotheses: forward rate unbiasedness, rational expectations, risk neutrality and homogeneous expectations. The paper aims to discuss these issues.

Design/methodology/approach

Although each of these hypotheses may be relatively easy to understand one by one, it is harder to see their linkages. Thus, the author develops the loop diagram for supplementing traditional instruction methods.

Findings

The author finds that a significant majority of students prefer the loop diagram approach. Furthermore, students using loop diagram display more understanding of the forward market efficiency than those with access to a conventional instruction.

Originality/value

The loop diagram provides students a simple visual aid for formulating a complete set of regressions and enables them to analyze a richer set of relationships between several hypotheses than what they typically see in finance textbooks.

Keywords

Acknowledgements

The author is grateful to University of the Thai Chamber of Commerce for funding.

Citation

Jitmaneeroj, B. (2014), "A loop diagram pedagogy: seeing the unseen in the forward market efficiency hypothesis", Managerial Finance, Vol. 40 No. 2, pp. 189-199. https://doi.org/10.1108/MF-06-2013-0135

Publisher

:

Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

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