Unbiased Predictor

DEFINITION of '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.

BREAKING DOWN '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.

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RELATED FAQS
  1. How can I calculate the notional value of a futures contract?

    Learn how the notional value of a futures contract is calculated, and how futures are different from stock since they have ... Read Answer >>
  2. How accurate is the forward rate in predicting interest rates?

    Find out why forward rates are inconsistent and limited predictors of actual future interest rates, primarily because the ... Read Answer >>
  3. What is the difference between notional value and market value?

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  4. What are some common markets where notional value is used?

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  5. How valuable is the forward rate as an overall economic indicator?

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