Testing for a forecast bias. You must determine whether there is a forecast bias in the forward rate. You apply regression analysis to test the relationship between the actual spot rate and the forward rate forecast (F):
S ¼ a0 þ a1(F)
The regression results are as follows:
|
Coefficient
|
Standard Error
|
|
a0 ¼ 0.006
|
0.011
|
|
a1 ¼ 0.800
|
0.05
|
Based on these results, is there a bias in the forecast? Verify your conclusion. If there is a bias, explain whether it is an overestimate or an underestimate.