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Exchange rate forecasters’ performance: evidence of skill?

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  • Ronald MacDonald
  • Lukas Menkhoff
  • Rafael R. Rebitzky

Abstract

IThis 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’ fore-casters 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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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2009_13.

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Date of creation: Feb 2009
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Handle: RePEc:gla:glaewp:2009_13

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

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References

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Cited by:
  1. 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.
  2. Gloede, Oliver & Menkhoff, Lukas, 2011. "Financial professionals' overconfidence:Is it experience, function, or attitude?," Hannover Economic Papers (HEP) dp-428, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

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