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The Relation Between Overreaction in Forecasts and Uncertainty: A Nonlinear Approach

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  • Leppin, Julian Sebstian

Abstract

This paper examines if overreaction of oil price forecasters is affected by uncertainty. Furthermore, it takes into account joint effects of uncertainty and oil price returns on forecast changes. The panel smooth transition regression model from Gonz alez et al. (2005) is applied with univariate and multivariate transition functions to account for nonlinear relations. Data on oil price expectations for different time horizons are taken from the European Central Bank Survey of Professional Forecasters. The results show that forecasters overreact for low levels of uncertainty and underreact for increasing uncertainty. Furthermore, returns are found to be more relevant for forecast changes in short time horizons while uncertainty dominates for longer ones.

Suggested Citation

  • Leppin, Julian Sebstian, 2014. "The Relation Between Overreaction in Forecasts and Uncertainty: A Nonlinear Approach," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100284, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc14:100284
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    References listed on IDEAS

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    Cited by:

    1. Shraddha Mishra & Raj Kumar, 2016. "Investigation of overvalued and undervalued stocks: the case of BSE Sensex," International Journal of Business Excellence, Inderscience Enterprises Ltd, vol. 10(2), pages 177-189.

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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