Biases of Professional Exchange Rate Forecasts: Psychological Explanations and an Experimentally-Based Comparison to Novices
The empirical performance of macroeconomic exchange rate models is more than disappointing. This dismal result is also reflected in the forecasting capabilities of professional analysts: all in all, analysts are not in a position to beat naïve random walk forecasts. The root for this deficient outcome stems from the fact that professional forecasts are to a large extend influenced by actual changes in exchange rates. A reasonable explanation for this behaviour can be taken from the behavioural finance literature. To test whether this characteristic tends to be general human behaviour in an uncertain environment, we analyse the forecasting behaviour of students experimentally, using a simulated currency series. Our results indicate that topically-oriented trend adjustment behaviour (TOTA) is a general characteristic of human forecasting behaviour. Additionally, we apply a simple model to explain professional and student forecasts.
Year of publication: |
2004-02
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Authors: | Bofinger, Peter ; Leitner, Johannes ; Schmidt, Robert |
Institutions: | C.E.P.R. Discussion Papers |
Subject: | anchoring heuristics | behavioural finance | expertise | forecasting | foreign exchange market | judgement |
Saved in:
Online Resource
Extent: | application/pdf |
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Series: | |
Type of publication: | Book / Working Paper |
Notes: | Number 4230 |
Classification: | C53 - Forecasting and Other Model Applications ; D70 - Analysis of Collective Decision-Making. General ; D81 - Criteria for Decision-Making under Risk and Uncertainty ; F31 - Foreign Exchange ; F47 - Forecasting and Simulation ; G12 - Asset Pricing |
Source: |
Persistent link: https://www.econbiz.de/10005504428