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Exchange Rate Forecasters' Performance: Evidence of Skill?

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Author Info
Ronald MacDonald ()
Lukas Menkhoff ()
Rafael R. Rebitzky ()

Additional information is available for the following registered author(s):

Abstract

This paper sheds new light on a long-standing puzzle in the international finance literature, namely, that exchange rate expectations appear inaccurate and even irrational. We find for a comprehensive dataset that individual forecasters’ performance is skill-based. ‘Superior’ forecasters show consistent ability as their forecasting success holds across currencies. They seem to possess knowledge on the role of fundamentals in explaining exchange rate behavior, as indicated by better interest rate forecasts. Superior forecasters are more experienced than the median forecaster and have fewer personnel responsibilities. Accordingly, foreign exchange markets may function in less puzzling and irrational ways than is often thought.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2615.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2615

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Related research
Keywords: foreign exchange market; individual exchange rate forecasts; interest rate forecasts; forecaster experience;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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