Should One Rely on Professional Exchange Rate Forecasts? An Empirical Analysis of Professional Forecasts for the €/US$ Rate
AbstractThe study analyses the characteristics of professional exchange rate forecasts for the €/US$ rate. The results indicate that the quality of forecasts produced by professional economists is rather poor and incompatible with the rational expectations hypothesis. This dismal result is according to our analysis attributed to the fact that professional forecasts are to a large extent influenced by actual changes in exchange rates. A reasonable explanation for this behaviour can be derived from the behavioural finance literature. According to the anchoring heuristic, decision processes are often dominated by available pieces of information even if they are obviously of no relevance.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4235.
Date of creation: Feb 2004
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Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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