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Are Foreign Exchange Market Forecasters "Rational"? Some Survey-Based Tests

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  • MacDonald, Ronald

Abstract

In this paper, a number of rationality tests are implemented using survey data on exchange rate expectations for four currencies (dollar-sterling, deutsche mark-dollar, yen-dollar, and Swiss franc-dollar). It is demonstrated, inter alia, that the survey expectations are biased, orthogonal to an information set consisting of lagged survey forecast errors, but not orthogonal to an information set consisting of lagged forward premiums. Copyright 1990 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • MacDonald, Ronald, 1990. "Are Foreign Exchange Market Forecasters "Rational"? Some Survey-Based Tests," The Manchester School of Economic & Social Studies, University of Manchester, vol. 58(3), pages 229-241, September.
    • Handle: RePEc:bla:manch2:v:58:y:1990:i:3:p:229-41
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    Cited by:

    1. Georges Prat & Remzi Uctum, 2015. "Expectation formation in the foreign exchange market: a time-varying heterogeneity approach using survey data," Applied Economics, Taylor & Francis Journals, vol. 47(34-35), pages 3673-3695, July.
    2. Leitemo, Kai & Soderstrom, Ulf, 2005. "Simple monetary policy rules and exchange rate uncertainty," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 481-507, April.
    3. Prat, Georges & Uctum, Remzi, 2013. "Modeling the horizon-dependent ex-ante risk premium in the foreign exchange market: Evidence from survey data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 33-54.
    4. Georges Prat & Remzi Uctum, 2012. "Modeling the horizon-dependent risk premium in the forex market: evidence from survey data," EconomiX Working Papers 2012-29, University of Paris Nanterre, EconomiX.
    5. Chionis, Dionysios & MacDonald, Ronald, 2002. "Aggregate and disaggregate measures of the foreign exchange risk premium," International Review of Economics & Finance, Elsevier, vol. 11(1), pages 57-84, April.
    6. MacDonald, Ronald, 2000. "Is the foreign exchange market 'risky'? Some new survey-based results," Journal of Multinational Financial Management, Elsevier, vol. 10(1), pages 1-14, January.
    7. Georges Prat & Remzi Uctum, 2012. "Modeling the horizon-dependent risk premium in the forex market: evidence from survey data," Working Papers hal-04141062, HAL.
    8. Ron Jongen & Willem F.C. Verschoor & Christian C.P. Wolff, 2008. "Foreign Exchange Rate Expectations: Survey And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 140-165, February.
    9. Michael Schroder & Robert Dornau, 2002. "Do forecasters use monetary models? an empirical analysis of exchange rate expectations," Applied Financial Economics, Taylor & Francis Journals, vol. 12(8), pages 535-543.
    10. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, vol. 3(2), pages 123-192, June.
    11. Ronald MacDonald, 2000. "Expectations Formation and Risk in Three Financial Markets: Surveying What the Surveys Say," Journal of Economic Surveys, Wiley Blackwell, vol. 14(1), pages 69-100, February.
    12. Macdonald, Ronald & Marsh, Ian W., 1996. "Currency forecasters are heterogeneous: confirmation and consequences," Journal of International Money and Finance, Elsevier, vol. 15(5), pages 665-685, October.
    13. Saskia ter Ellen & Willem F. C. Verschoor, 2018. "Heterogeneous Beliefs and Asset Price Dynamics: A Survey of Recent Evidence," Dynamic Modeling and Econometrics in Economics and Finance, in: Fredj Jawadi (ed.), Uncertainty, Expectations and Asset Price Dynamics, pages 53-79, Springer.
    14. Saskia ter Ellen & Willem F.C. Verschoor, 2017. "Heterogeneous beliefs and asset price dynamics: a survey of recent evidence," Working Paper 2017/22, Norges Bank.

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