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

  • Johannes Leitner


  • Robert Schmidt


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    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

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    Article provided by 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 in its journal Central European Journal of Operations Research.

    Volume (Year): 14 (2006)
    Issue (Month): 1 (February)
    Pages: 87-102

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    Handle: RePEc:spr:cejnor:v:14:y:2006:i:1:p:87-102
    DOI: 10.1007/s10100-006-0161-x
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