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Herding behavior and loss functions of exchange rate forecasters over interventions and financial crises

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  • Tsuchiya, Yoichi

Abstract

This study examines herding behaviors of yen/dollar exchange rate forecasters, focusing on whether their behaviors are time-varying. The empirical results show that interventions amplified herding for a one-month horizon. During the recent financial crises, herding was pronounced for the one-month forecast horizon, and anti-herding, for a one-year horizon. Quantitative Easing 1 (QE1) also saw pronounced anti-herding for one-month and one-year horizons. Their loss functions are also evaluated under a possibly asymmetric loss function. The degree and direction of asymmetry are time-varying, and their variations differ among forecasters. The results are broadly consistent with (anti-) herding and its time-varying feature.

Suggested Citation

  • Tsuchiya, Yoichi, 2015. "Herding behavior and loss functions of exchange rate forecasters over interventions and financial crises," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 266-276.
    • Handle: RePEc:eee:reveco:v:39:y:2015:i:c:p:266-276
    DOI: 10.1016/j.iref.2015.04.010
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    8. Michael Frenkel & Matthias Mauch & Jan-Christoph Rülke, 2017. "Forecaster Rationality and Expectation Formation in Foreign Exchange Markets: Do Emerging Markets Differ from Industrialized Economies?," WHU Working Paper Series - Economics Group 17-04, WHU - Otto Beisheim School of Management.
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    More about this item

    Keywords

    Financial crisis; Asymmetric loss; Central bank intervention; Herding; Monetary policy;
    All these keywords.

    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
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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