Exchange Rate Forecasters' Performance: Evidence of Skill?

40 Pages Posted: 20 Apr 2009

See all articles by Ronald MacDonald

Ronald MacDonald

University of Strathclyde in Glasgow - Department of Economics; Government of New Zealand - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Rafael R. Rebitzky

Leibniz University Hannover

Date Written: April 2009

Abstract

This paper sheds new light on a long-standing puzzle in the international finance literature, namely, that exchange rate expectations appear inaccurate and even irrational. We find for a comprehensive dataset that individual forecasters' performance is skill-based. 'Superior' forecasters show consistent ability as their forecasting success holds across currencies. They seem to possess knowledge on the role of fundamentals in explaining exchange rate behavior, as indicated by better interest rate forecasts. Superior forecasters are more experienced than the median forecaster and have fewer personnel responsibilities. Accordingly, foreign exchange markets may function in less puzzling and irrational ways than is often thought.

Keywords: foreign exchange market, individual exchange rate forecasts, interest rate forecasts, forecaster experience

JEL Classification: F31, G14

Suggested Citation

MacDonald, Ronald R. and Menkhoff, Lukas and Rebitzky, Rafael R., Exchange Rate Forecasters' Performance: Evidence of Skill? (April 2009). CESifo Working Paper Series No. 2615. Available at SSRN: https://ssrn.com/abstract=1392158

Ronald R. MacDonald (Contact Author)

University of Strathclyde in Glasgow - Department of Economics ( email )

100 Cathedral Street
Glasgow G4 0LN
United Kingdom
+44 141 548 3861 (Phone)

Government of New Zealand - Department of Economics

2 The Terrace
P.O. Box 2498
Wellington
New Zealand

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

Rafael R. Rebitzky

Leibniz University Hannover ( email )

Institut fur Rechnungslegung und WP
Koenigsworther Platz 1
Hannover, 30167
Germany

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