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Financial Markets Forecasts Revisited: Are they Rational, Herding or Bold?

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Author Info

  • Ippei Fujiwara

    (Associate Professor, Australian National University, CAMA, EABCN, and Globalization and Monetary Policy Institute (FRB Dallas) (E-mail: ippei.fujiwara@anu.edu.au))

  • Hibiki Ichiue

    (Director, Monetary Affairs Department, Bank of Japan (E-mail: hibiki.ichiue@boj.or.jp))

  • Yoshiyuki Nakazono

    (Waseda University and Research Fellow of the Japan Society for the Promotion of Science (Email: ynakazono@fuji.waseda.jp))

  • Yosuke Shigemi

    (Director, Institute for Monetary and Economic Studies, (currently Information System Services Department), Bank of Japan (E-mail: yousuke.shigemi@boj.or.jp))

Abstract

We test whether professional forecasters forecast rationally or behaviorally using a unique database, QSS Database, which is the monthly panel of forecasts on Japanese stock prices and bond yields. The estimation results show that (i) professional forecasts are behavioral, namely, significantly influenced by past forecasts, (ii) there exists a stock-bond dissonance: while forecasting behavior in the stock market seems to be herding, that in the bond market seems to be bold in the sense that their current forecasts tend to be negatively related to past forecasts, and (iii) the dissonance is due, at least partially, to the individual forecastersf behavior that is influenced by their own past forecasts rather than othersf. Even in the same country, forecasting behavior is quite different by market.

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Bibliographic Info

Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 12-E-06.

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Date of creation: May 2012
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Handle: RePEc:ime:imedps:12-e-06

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Keywords: Anchoring; Bold; Herding; Survey Forecasts;

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  1. Harrison Hong & Jeffrey D. Kubik & Amit Solomon, 2000. "Security Analysts' Career Concerns and Herding of Earnings Forecasts," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 121-144, Spring.
  2. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521824019.
  3. Andreas Park & Hamid Sabourian, 2011. "Herding and Contrarian Behavior in Financial Markets," Econometrica, Econometric Society, Econometric Society, vol. 79(4), pages 973-1026, 07.
  4. Hibiki Ichiue & Tomonori Yuyama, 2009. "Using Survey Data to Correct the Bias in Policy Expectations Extracted from Fed Funds Futures," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(8), pages 1631-1647, December.
  5. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521530927.
  6. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(1), pages 21-40, February.
  7. Alan Beggs & Kathryn Graddy, 2009. "Anchoring Effects: Evidence from Art Auctions," American Economic Review, American Economic Association, American Economic Association, vol. 99(3), pages 1027-39, June.
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Cited by:
  1. Francesca Pancotto & Filippo Maria Pericoli & Marco Pistagnesi, 2013. "Inefficiency in Survey Exchange Rates Forecasts," Center for Economic Research (RECent), University of Modena and Reggio E., Dept. of Economics 090, University of Modena and Reggio E., Dept. of Economics.
  2. Meub, Lukas & Proeger, Till, 2014. "Are groups 'less behavioral'? The case of anchoring," Center for European, Governance and Economic Development Research Discussion Papers 188, University of Goettingen, Department of Economics.
  3. Meub, Lukas & Proeger, Till, 2014. "An experimental study on social anchoring," Center for European, Governance and Economic Development Research Discussion Papers 196, University of Goettingen, Department of Economics.
  4. Meub, Lukas & Proeger, Till & Bizer, Kilian, 2013. "Anchoring: A valid explanation for biased forecasts when rational predictions are easily accessible and well incentivized?," Center for European, Governance and Economic Development Research Discussion Papers 166, University of Goettingen, Department of Economics.

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