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A systematic comparison of professional exchange rate forecasts with the judgemental forecasts of novices


  • Johannes Leitner


  • Robert Schmidt



Professional forecasters in foreign exchange markets are not able to beat naive forecasts. In order to find reasons for this phenomenon we compare the empirical forecasts of experts with the experimentally generated forecasts of novices for the EUR/USD exchange rate in three different forecast horizons. Although the subjects are only provided with the realizations of the exchange rate and are not supported by any statistical procedures they outperform experts in accuracy. Professionals consistently expect a reversal of forgoing exchange rate changes whereas novices extrapolate trends. The judgemental forecasts appear to be unbiased and professionals appear to be biased. We demonstrate that professionals are influenced by the fundamental value—an irrelevant anchor in speculative exchange markets. The poor performance of the experts is not a common failure of human decision-making in market environments but caused by misleading information. Copyright Springer-Verlag 2006

Suggested Citation

  • Johannes Leitner & Robert Schmidt, 2006. "A systematic comparison of professional exchange rate forecasts with the judgemental forecasts of novices," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 14(1), pages 87-102, February.
  • Handle: RePEc:spr:cejnor:v:14:y:2006:i:1:p:87-102
    DOI: 10.1007/s10100-006-0161-x

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    Cited by:

    1. Theocharis, Zoe & Harvey, Nigel, 2016. "Order effects in judgmental forecasting," International Journal of Forecasting, Elsevier, vol. 32(1), pages 44-60.
    2. Meub, Lukas & Proeger, Till & Bizer, Kilian, 2013. "Anchoring: A valid explanation for biased forecasts when rational predictions are easily accessible and well incentivized?," Center for European, Governance and Economic Development Research Discussion Papers 166, University of Goettingen, Department of Economics.
    3. Leitner, Johannes & Leopold-Wildburger, Ulrike, 2011. "Experiments on forecasting behavior with several sources of information - A review of the literature," European Journal of Operational Research, Elsevier, vol. 213(3), pages 459-469, September.
    4. Kunze, Frederik, 2017. "Predicting exchange rates in Asia: New insights on the accuracy of survey forecasts," Center for European, Governance and Economic Development Research Discussion Papers 326, University of Goettingen, Department of Economics.


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