A Systematic Comparison of Professional Exchange Rate Forecasts with Judgmental Forecasts of Novices - are There Substantial Differences?
Wuerzburg Economic Working Paper No. 49
40 Pages Posted: 19 Mar 2004
Date Written: March 2004
The study at hand deals with the expectations of professional analysts and novices in the context of foreign exchange markets. We analyze the respective forecasting accuracy and our results indicate that there exist substantial differences between professional forecasts and judgmental forecasts of novices. In search of reasonable explanations for the astonishing result, we evaluate the nature of professional and experimental expectations in more detail and find that while professional exchange rate forecasts seem to be biased predictors for the future exchange rates, judgmental forecasts appear to be unbiased. Furthermore, professional forecasters consistently expect a reversal of forgoing exchange rate changes whereas novices expect a continuation of current movements in the short-run and are reversed in the long-run.
Keywords: Foreign exchange market, forecasting, behavioral finance, anchoring heuristics, judgment, expertise, expectation formation
JEL Classification: C53, C92, D7, D81, D84, E27, F31, F47
Suggested Citation: Suggested Citation