Advanced Search
MyIDEAS: Login to save this paper or follow this series

Exchange Rate Forecasters' Performance: Evidence of Skill?

Contents:

Author Info

  • Ronald MacDonald
  • Lukas Menkhoff
  • Rafael R. Rebitzky

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-04/cesifo1_wp2615.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2615.

as in new window
Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:ces:ceswps:_2615

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Email:
Web page: http://www.cesifo.de
More information through EDIRC

Related research

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

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Philippe Bacchetta & Elmar Mertens & Eric van Wincoop, 2006. "Predictability in Financial Markets: What Do Survey Expectations Tell Us?," Working Papers, Hong Kong Institute for Monetary Research 102006, Hong Kong Institute for Monetary Research.
  2. Pasquale Della Corte & Lucio Sarno & Ilias Tsiakas, 2009. "An Economic Evaluation of Empirical Exchange Rate Models," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 22(9), pages 3491-3530, September.
  3. Sarno, Lucio & Wohar, Mark, 2003. "Monetary Fundamentals and Exchange Rate Dynamics Under Different Nominal Regimes," Computing in Economics and Finance 2003, Society for Computational Economics 310, Society for Computational Economics.
  4. Giorgio Valente & Lucio Sarno & Abhay Abhayankar, 2004. "Exchange Rates and Fundamentals: Evidence on the Economic Value of Predictability," Working Papers, Warwick Business School, Finance Group wp04-01, Warwick Business School, Finance Group.
  5. Philippe Bacchetta & Eric van Wincoop, 2003. "Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?," Working Papers 03.02, Swiss National Bank, Study Center Gerzensee.
  6. Menkhoff, Lukas & Taylor, Mark P., 2006. "The Obstinate Passion of Foreign Exchange Professionals : Technical Analysis," The Warwick Economics Research Paper Series (TWERPS) 769, University of Warwick, Department of Economics.
  7. De Grauwe, Paul & Grimaldi, Marianna, 2006. "Exchange rate puzzles: A tale of switching attractors," European Economic Review, Elsevier, Elsevier, vol. 50(1), pages 1-33, January.
  8. Kenneth S. Rogoff & Vania Stavrakeva, 2008. "The Continuing Puzzle of Short Horizon Exchange Rate Forecasting," NBER Working Papers 14071, National Bureau of Economic Research, Inc.
  9. Michael B. Clement & Senyo Y. Tse, 2005. "Financial Analyst Characteristics and Herding Behavior in Forecasting," Journal of Finance, American Finance Association, American Finance Association, vol. 60(1), pages 307-341, 02.
  10. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  11. Michela Nardo, 2003. "The Quantification of Qualitative Survey Data : A Critical Assessment," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 17(5), pages 645-668, December.
  12. Judith Chevalier & Glenn Ellison, 1999. "Are Some Mutual Fund Managers Better Than Others? Cross-Sectional Patterns in Behavior and Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 54(3), pages 875-899, 06.
  13. Yin-Wong Cheung & Menzie D. Chinn & Antonio Garcia Pascual, 2002. "Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?," NBER Working Papers 9393, National Bureau of Economic Research, Inc.
  14. Leitch, Gordon & Tanner, J Ernest, 1991. "Economic Forecast Evaluation: Profits versus the Conventional Error Measures," American Economic Review, American Economic Association, American Economic Association, vol. 81(3), pages 580-90, June.
  15. Cheung, Yin-Wong & Wong, Clement Yuk-Pang, 2000. "A survey of market practitioners' views on exchange rate dynamics," Journal of International Economics, Elsevier, Elsevier, vol. 51(2), pages 401-419, August.
  16. Wakita, Shigeru, 1989. "Are survey forecasts trusted? : American trade account deficit and yen/dollar rate," Economics Letters, Elsevier, Elsevier, vol. 29(4), pages 339-344.
  17. Elliott, Graham & Ito, Takatoshi, 1999. "Heterogeneous expectations and tests of efficiency in the yen/dollar forward exchange rate market," Journal of Monetary Economics, Elsevier, Elsevier, vol. 43(2), pages 435-456, April.
  18. Kilian, Lutz & Taylor, Mark P., 2003. "Why is it so difficult to beat the random walk forecast of exchange rates?," Journal of International Economics, Elsevier, Elsevier, vol. 60(1), pages 85-107, May.
  19. Momtchil Pojarliev & Richard M. Levich, 2007. "Do Professional Currency Managers Beat the Benchmark?," NBER Working Papers 13714, National Bureau of Economic Research, Inc.
  20. Loh, Roger K. & Mian, G. Mujtaba, 2006. "Do accurate earnings forecasts facilitate superior investment recommendations?," Journal of Financial Economics, Elsevier, Elsevier, vol. 80(2), pages 455-483, May.
  21. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, Elsevier, vol. 14(1-2), pages 3-24, February.
  22. Jeffrey A. Frankel & Kenneth A. Froot, 1985. "Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations," NBER Working Papers 1672, National Bureau of Economic Research, Inc.
  23. Pesaran, M. Hashem & Weale, Martin, 2006. "Survey Expectations," Handbook of Economic Forecasting, Elsevier, Elsevier.
  24. Rapach, David E. & Wohar, Mark E., 2002. "Testing the monetary model of exchange rate determination: new evidence from a century of data," Journal of International Economics, Elsevier, Elsevier, vol. 58(2), pages 359-385, December.
  25. Frankel, Jeffrey A. & Rose, Andrew K., 1995. "Empirical research on nominal exchange rates," Handbook of International Economics, Elsevier, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 33, pages 1689-1729 Elsevier.
  26. Ito, Takatoshi, 1990. "Foreign Exchange Rate Expectations: Micro Survey Data," American Economic Review, American Economic Association, American Economic Association, vol. 80(3), pages 434-49, June.
  27. Robert Kosowski & Allan Timmermann & Russ Wermers & Hal White, 2006. "Can Mutual Fund "Stars" Really Pick Stocks? New Evidence from a Bootstrap Analysis," Journal of Finance, American Finance Association, American Finance Association, vol. 61(6), pages 2551-2595, December.
  28. Macdonald, Ronald & Marsh, Ian W., 1996. "Currency forecasters are heterogeneous: confirmation and consequences," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(5), pages 665-685, October.
  29. MacDonald, Ronald & Taylor, Mark P., 1994. "The monetary model of the exchange rate: long-run relationships, short-run dynamics and how to beat a random walk," Journal of International Money and Finance, Elsevier, Elsevier, vol. 13(3), pages 276-290, June.
  30. Frankel, Jeffrey A & Froot, Kenneth A, 1987. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," American Economic Review, American Economic Association, American Economic Association, vol. 77(1), pages 133-53, March.
  31. Mikhail, Michael B. & Walther, Beverly R. & Willis, Richard H., 2004. "Do security analysts exhibit persistent differences in stock picking ability?," Journal of Financial Economics, Elsevier, Elsevier, vol. 74(1), pages 67-91, October.
  32. Allen, Helen & Taylor, Mark P, 1990. "Charts, Noise and Fundamentals in the London Foreign Exchange Market," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(400), pages 49-59, Supplemen.
  33. Blake, David & Beenstock, Michael & Brasse, Valerie, 1986. "The Performance of UK Exchange Rate Forecasters," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 96(384), pages 986-99, December.
  34. Kathryn M. Dominguez, 1986. "Are foreign exchange forecasts rational? New evidence from survey data," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 281, Board of Governors of the Federal Reserve System (U.S.).
  35. Goodman, Stephen H, 1979. "Foreign Exchange Rate Forecasting Techniques: Implications for Business and Policy," Journal of Finance, American Finance Association, American Finance Association, vol. 34(2), pages 415-27, May.
  36. Shinji Takagi, 1991. "Exchange Rate Expectations: A Survey of Survey Studies," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 156-183, March.
  37. Marsh, Ian W. & Power, David M., 1996. "A note on the performance of foreign exchange forecasters in a portfolio framework," Journal of Banking & Finance, Elsevier, Elsevier, vol. 20(3), pages 605-613, April.
  38. MacDonald, Ronald, 2000. " Expectations Formation and Risk in Three Financial Markets: Surveying What the Surveys Say," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 14(1), pages 69-100, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Gloede, Oliver & Menkhoff, Lukas, 2011. "Financial professionals' overconfidence:Is it experience, function, or attitude?," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-428, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  2. Fat Codruta Maria & Dezsi Eva, 2011. "Exchange-Rates Forecasting: Exponential Smoothing Techniques And Arima Models," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 499-508, July.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2615. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.