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Predicting the signs of forecast errors

Author

Listed:
  • Nazaria Solferino

    (University of Rome 'Tor Vergata', Rome, Italy)

  • Robert Waldmann

    (University of Rome 'Tor Vergata', Rome, Italy)

Abstract

The signs of forecast errors can be predicted using the difference between individuals' forecasts and the average of earlier forecasts of the same variable. It is possible to improve forecasts without worsening any. It is difficult to reconcile this result with the rational expectations hypothesis because the average of earlier forecasts is in the information set of the forecasters. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Nazaria Solferino & Robert Waldmann, 2010. "Predicting the signs of forecast errors," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(5), pages 476-485.
    • Handle: RePEc:jof:jforec:v:29:y:2010:i:5:p:476-485
    DOI: 10.1002/for.1139
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    References listed on IDEAS

    as
    1. Graham Elliott & Allan Timmermann & Ivana Komunjer, 2005. "Estimation and Testing of Forecast Rationality under Flexible Loss," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(4), pages 1107-1125.
    2. Clive W.J. Granger, 1999. "Outline of forecast theory using generalized cost functions," Spanish Economic Review, Springer;Spanish Economic Association, vol. 1(2), pages 161-173.
    3. Graham Elliott & Allan Timmermann, 2016. "Economic Forecasting," Economics Books, Princeton University Press, edition 1, number 10740.
    4. Christoffersen, Peter F. & Diebold, Francis X., 1997. "Optimal Prediction Under Asymmetric Loss," Econometric Theory, Cambridge University Press, vol. 13(6), pages 808-817, December.
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    6. Batchelor, Roy & Peel, David A., 1998. "Rationality testing under asymmetric loss," Economics Letters, Elsevier, vol. 61(1), pages 49-54, October.
    7. Graham Elliott & Ivana Komunjer & Allan Timmermann, 2008. "Biases in Macroeconomic Forecasts: Irrationality or Asymmetric Loss?," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 122-157, March.
    8. Weiss, Andrew A, 1996. "Estimating Time Series Models Using the Relevant Cost Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 539-560, Sept.-Oct.
    9. Tilman Ehrbeck & Robert Waldmann, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(1), pages 21-40.
    10. Patton, Andrew J. & Timmermann, Allan, 2007. "Properties of optimal forecasts under asymmetric loss and nonlinearity," Journal of Econometrics, Elsevier, vol. 140(2), pages 884-918, October.
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    1. Photographing Phantom Invisible Bond Vigilantes
      by Robert in angry bear on 2009-11-22 19:02:00
    2. I am storing pdf's at google sites so you can see my research
      by Robert in Robert's Stochastic Thoughts on 2009-03-16 16:09:00
    3. Copying It's not Just for Students any More
      by Robert in Robert's Stochastic Thoughts on 2014-08-12 17:17:00

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    Cited by:

    1. Bergmeir, Christoph & Costantini, Mauro & Benítez, José M., 2014. "On the usefulness of cross-validation for directional forecast evaluation," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 132-143.

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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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