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 profes-sional economists is rather poor and incompatible with the rational expectations hy-pothesis. This dismal result is according to our analysis attributed to the fact that professional forecasts are to a large extend influenced by actual changes in exchange rates. A reasonable explanation for this behaviour can be derived from the behav-ioural 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 University of Würzburg, Chair for Monetary Policy and International Economics in its series W.E.P. - Würzburg Economic Papers with number 38.
Date of creation: 2003
Date of revision:
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foreign exchange market; rational expectations; forecasts; behavioural finance; anchoring heuristics;
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; Trading Volume; Bond Interest Rates
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Francis X. Diebold & Jose A. Lopez, 1995.
"Forecast evaluation and combination,"
9525, Federal Reserve Bank of New York.
- Bofinger, Peter & Leitner, Johannes & Schmidt, Robert, 2004. "Biases of Professional Exchange Rate Forecasts: Psychological Explanations and an Experimentally-Based Comparison to Novices," CEPR Discussion Papers 4230, C.E.P.R. Discussion Papers.
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