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The influence of the forecast horizon on judgemental probability forecasts of exchange rate movements

Listed author(s):
  • Mary Thomson
  • Andrew Pollock
  • Karen Henriksen
  • Alex Macaulay
Registered author(s):

    An experiment is reported which compares directional forecasting performance of experts, novices and simple statistical models over three time horizons on a task involving probabilistic forecasts of exchange rate movements. Probability-judgement accuracy analyses illustrated no clear overall performance differences between experts and novices, but significant differences between the groups on various important components of judgement suggested that the groups obtained their similar overall scores using different cognitive strategies. Striking horizon effects and expertize-horizon interactions were also observed. The subjects performed better than a random walk forecaster, but worse than the random walk with constant drift and first-order autoregressive models. Composite human judgement, however, not only improved on individual judgement but, also, surpassed the simple statistical models in many instances. Possible explanations are offered for these results, suggestions are made for future research, and practical implications are emphasized.

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    Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

    Volume (Year): 10 (2004)
    Issue (Month): 4 ()
    Pages: 290-307

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    Handle: RePEc:taf:eurjfi:v:10:y:2004:i:4:p:290-307
    DOI: 10.1080/13518470110047620
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    1. Blake, David & Beenstock, Michael & Brasse, Valerie, 1986. "The Performance of UK Exchange Rate Forecasters," Economic Journal, Royal Economic Society, vol. 96(384), pages 986-999, December.
    2. Hafer, R W & Hein, Scott E, 1985. "On the Accuracy of Time-Series, Interest Rate, and Survey Forecasts of Inflation," The Journal of Business, University of Chicago Press, vol. 58(4), pages 377-398, October.
    3. Marsh, Ian W. & Power, David M., 1996. "A note on the performance of foreign exchange forecasters in a portfolio framework," Journal of Banking & Finance, Elsevier, vol. 20(3), pages 605-613, April.
    4. Wilkie-Thomson, Mary E. & Onkal-Atay, Dilek & Pollock, Andrew C., 1997. "Currency forecasting: an investigation of extrapolative judgement," International Journal of Forecasting, Elsevier, vol. 13(4), pages 509-526, December.
    5. Allen, Helen & Taylor, Mark P, 1990. "Charts, Noise and Fundamentals in the London Foreign Exchange Market," Economic Journal, Royal Economic Society, vol. 100(400), pages 49-59, Supplemen.
    6. Wilkie, Mary E. & Pollock, Andrew C., 1996. "An application of probability judgement accuracy measures to currency forecasting," International Journal of Forecasting, Elsevier, vol. 12(1), pages 25-40, March.
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