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The influence of the forecast horizon on judgemental probability forecasts of exchange rate movements

Author

Listed:
  • Mary Thomson
  • Andrew Pollock
  • Karen Henriksen
  • Alex Macaulay

Abstract

An experiment is reported which compares directional forecasting performance of experts, novices and simple statistical models over three time horizons on a task involving probabilistic forecasts of exchange rate movements. Probability-judgement accuracy analyses illustrated no clear overall performance differences between experts and novices, but significant differences between the groups on various important components of judgement suggested that the groups obtained their similar overall scores using different cognitive strategies. Striking horizon effects and expertize-horizon interactions were also observed. The subjects performed better than a random walk forecaster, but worse than the random walk with constant drift and first-order autoregressive models. Composite human judgement, however, not only improved on individual judgement but, also, surpassed the simple statistical models in many instances. Possible explanations are offered for these results, suggestions are made for future research, and practical implications are emphasized.

Suggested Citation

  • Mary Thomson & Andrew Pollock & Karen Henriksen & Alex Macaulay, 2004. "The influence of the forecast horizon on judgemental probability forecasts of exchange rate movements," The European Journal of Finance, Taylor & Francis Journals, vol. 10(4), pages 290-307.
    • Handle: RePEc:taf:eurjfi:v:10:y:2004:i:4:p:290-307
    DOI: 10.1080/13518470110047620
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    References listed on IDEAS

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    Cited by:

    1. Theocharis, Zoe & Harvey, Nigel, 2016. "Order effects in judgmental forecasting," International Journal of Forecasting, Elsevier, vol. 32(1), pages 44-60.
    2. Pollock, Andrew C. & Macaulay, Alex & Thomson, Mary E. & Onkal, Dilek, 2005. "Performance evaluation of judgemental directional exchange rate predictions," International Journal of Forecasting, Elsevier, vol. 21(3), pages 473-489.
    3. Lawrence, Michael & Goodwin, Paul & O'Connor, Marcus & Onkal, Dilek, 2006. "Judgmental forecasting: A review of progress over the last 25 years," International Journal of Forecasting, Elsevier, vol. 22(3), pages 493-518.

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