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Copycats and Common Swings: the Impact of the Use of Forecasts in Information Sets

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Abstract

This paper presents evidence, using data from Consensus Forecasts, that there is an 'attraction' to conform to the mean forecasts; in other words, views expressed by other forecasters in the previous period influence individuals' current forecast. The paper then discusses-and provides further evidence on-two important implications of this finding. The first is that the forecasting performance of these groups may be severely affected by the detected imitation behavior and lead to convergence to a value which is not the 'right' target. Second, since the forecasts are not independent, the common practice of using the standard deviation from the forecasts' distribution as if they were standard errors of the estimated mean is not warranted.

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File URL: http://local.disia.unifi.it/ricerca/pubblicazioni/working_papers/2001/wp2001_01.pdf
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Paper provided by Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti" in its series Econometrics Working Papers Archive with number wp2001_01.

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Length: 24 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:fir:econom:wp2001_01

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Keywords: Multistep forecast; Consensus forecast; Preliminary data.;

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  1. John R. Graham, 1999. "Herding among Investment Newsletters: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(1), pages 237-268, 02.
  2. Swanson, N.R., 1996. "Forecasting Using First Available Versus Fully Revised Economic Time Series data," Papers 4-96-7, Pennsylvania State - Department of Economics.
  3. David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias In Macroeconomic Forecasts," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 293-318, February.
  4. Owen Lamont, 1995. "Macroeconomics Forecasts and Microeconomic Forecasters," NBER Working Papers 5284, National Bureau of Economic Research, Inc.
  5. Granger, Clive W J, 1996. "Can We Improve the Perceived Quality of Economic Forecasts?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 455-73, Sept.-Oct.
  6. Mills, Terence C. & Pepper, Gordon T., 1999. "Assessing the forecasters: an analysis of the forecasting records of the Treasury, the London Business School and the National Institute," International Journal of Forecasting, Elsevier, vol. 15(3), pages 247-257, July.
  7. Victor Zarnowitz & Louis A. Lambros, 1983. "Consensus and Uncertainty in Economic Prediction," NBER Working Papers 1171, National Bureau of Economic Research, Inc.
  8. Davies, Anthony & Lahiri, Kajal, 1995. "A new framework for analyzing survey forecasts using three-dimensional panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 205-227, July.
  9. David E. Runkle, 1998. "Revisionist history: how data revisions distort economic policy research," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-12.
  10. Zarnowitz, Victor & Lambros, Louis A, 1987. "Consensus and Uncertainty in Economic Prediction," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 591-621, June.
  11. Batchelor, Roy & Dua, Pami, 1998. "Improving macro-economic forecasts: The role of consumer confidence," International Journal of Forecasting, Elsevier, vol. 14(1), pages 71-81, March.
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