Postprint version. Published in Pacific Economic Review, Volume 5, Issue 3, October 1, 2000, pages 365-387.
NOTE: At the time of publication, the author Eric O'N. Fisher was not yet affiliated with Cal Poly.
The paper analyzes experimental markets where subjects buy and sell two different assets. The assets' properties vary across treatments, and their relative price is the exchange rate. Although both assets uniformly exhibit bubbles, the exchange rate satisfies cross‐currency arbitrage. There is no evidence of a positive risk premium in these markets, and almost all subjects' forecasts of the exchange rate are rational.