Should One Rely on Professional Exchange Rate Forecasts? An Empirical Analysis of Professional Forecasts for the Eur/Us-$ Rate

University of Wuerzburg Working Paper No. 38

29 Pages Posted: 19 Nov 2003

See all articles by Peter Bofinger

Peter Bofinger

University of Würzburg - Institute of Economics and Social Sciences

Robert Schmidt

University of Würzburg - Institute of Economics and Social Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: October 2003

Abstract

The study analyses the characteristics of professional exchange rate forecasts for the E/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.

Keywords: foreign exchange market, rational expectations, forecasts, behavioural finance, anchoring heuristics

JEL Classification: F31, F47, G12, G15

Suggested Citation

Bofinger, Peter and Schmidt, Robert, Should One Rely on Professional Exchange Rate Forecasts? An Empirical Analysis of Professional Forecasts for the Eur/Us-$ Rate (October 2003). University of Wuerzburg Working Paper No. 38, Available at SSRN: https://ssrn.com/abstract=458180 or http://dx.doi.org/10.2139/ssrn.458180

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)

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)

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