On the Reliability of Professional Exchange Rate Forecasts: An Empirical Analysis for the /Us-$ Rate

Schmidt, Robert; Bofinger, Peter

Abstract

On the Reliability of Professional Exchange Rate Forecasts: An Empirical Analysis for the /Us-$ Rate

Robert Schmidt

University of Würzburg - Institute of Economics and Social Sciences

University of Würzburg - Institute of Economics and Social Sciences

Financial Management and Portfolio Management, Vol. 17, No. 4, pp. 437-449, 2003

Abstract:
The study analyses the characteristics of professional exchange rate forecasts for the /US-$ rate. The results indicate that the quality of forecasts produced by professional economists is rather poor and incompatible with the rational expectations hypothesis. This dismal result is according to our analysis attributed to 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 derived from the behavioural finance literature. According to the anchoring heuristic decision processes are often dominated by available pieces of information even if they are obviously of no relevance.

JEL Classification: G0, G1

Accepted Paper Series

Date posted: September 12, 2005

Suggested Citation

Schmidt, Robert and Bofinger, Peter, On the Reliability of Professional Exchange Rate Forecasts: An Empirical Analysis for the /Us-$ Rate. Financial Management and Portfolio Management, Vol. 17, No. 4, pp. 437-449, 2003. Available at SSRN: http://ssrn.com/abstract=798184

Contact Information

Robert Schmidt (Contact Author) University of Würzburg - Institute of Economics and Social Sciences ( email ) Sanderring 2 Wuerzburg, 97070 Germany +49 931 312 948 (Phone) +49 931 312 775 (Fax)
Peter Bofinger University of Würzburg - Institute of Economics and Social Sciences ( email ) Sanderring 2 Wuerzburg, 97070 Germany +49 931 312 944/5 (Phone) +49 931 312 775 (Fax)