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Biases in FX-Forecasts: Evidence from Panel Data

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  • Audretsch, David B.
  • Stadtmann, Georg

Abstract

In this paper, we use the Wall Street Journal poll of FX forecasts to analyze how the group of forecasters form their expectations. One focus is whether forecasters build rational expectations. Furthermore, we analyze whether the group of forecasters can be regarded as homogeneous or heterogeneous. The results from our regressions strongly suggest that some forecasters combine different models of exchange rate forecasting, while others rely solely on one model. We also find evidence that some forecasters underly a bias, while others do not. Overall, our regression results indicate a high degree of heterogeneity. In conclusion, we show that the expectation formation process is not the same among all economists polled. Our findings carry importance for macroeconomic modelling: The assumption of rational agents forming homogeneous expectations is not supported by our results. --

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Bibliographic Info

Paper provided by Deutsche Bank Research in its series Research Notes with number 19.

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Date of creation: 2005
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Handle: RePEc:zbw:dbrrns:19

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Keywords: Foreign exchange market; forecast bias; random walk;

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References

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Citations

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Cited by:
  1. Menkhoff, Lukas & Rebitzky, Rafael & Schröder, Michael, 2005. "Do Dollar Forecasters Believe too Much in PPP?," Hannover Economic Papers (HEP) dp-321, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  2. Anufriev, M. & Tuinstra, J. & Bao, T., 2013. "Fund Choice Behavior and Estimation of Switching Models: An Experiment," CeNDEF Working Papers 13-04, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  3. Christian Pierdzioch & Georg Stadtmann, 2010. "Herdenverhalten von Wechselkursprognostikern?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(4), pages 436-453, August.
  4. Christian Wolff & Ron Jongen & Willem F.C. Verschoor & Remco C.J. Zwinkels, 2009. "Dispersion of Beliefs in the Foreign Exchange Market," LSF Research Working Paper Series 09-01, Luxembourg School of Finance, University of Luxembourg.

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