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

See all articles by Johannes Leitner

Johannes Leitner

Universität Graz - Institut für Statistik und Operations Research

Robert Schmidt

University of Würzburg - Institute of Economics and Social Sciences

Date Written: March 2004

Abstract

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

Leitner, Johannes and Schmidt, Robert, A Systematic Comparison of Professional Exchange Rate Forecasts with Judgmental Forecasts of Novices - are There Substantial Differences? (March 2004). Wuerzburg Economic Working Paper No. 49, Available at SSRN: https://ssrn.com/abstract=518062 or http://dx.doi.org/10.2139/ssrn.518062

Johannes Leitner

Universität Graz - Institut für Statistik und Operations Research ( email )

Universitätsstraße 15/E3
Graz, A-8010
Austria
+43(316)380-7245 (Phone)
+43(316)380-9560 (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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