Forecaster Rationality and Expectation Formation in Foreign Exchange Markets: Do Emerging Markets Differ from Industrialized Economies?

Michael Frenkel, Matthias Mauch () and Jan-Christoph Rülke

No 17-04, WHU Working Paper Series - Economics Group from WHU - Otto Beisheim School of Management

Abstract: This paper uses the Consensus Economic Forecast poll to investigate how forecasters in the foreign exchange market form expectations. In order to explain the expectation formation of forecasters, around 50,000 forecasts for 22 OECD-member currencies are analyzed. The results indicate that forecasters do not form expectations rationally when tested for unbiasedness and orthogonality. The results also suggest that forecasts for industrialized economies show a mix of trend-following and fundamentally-oriented behavior. By contrast, forecasts for emerging markets show significantly more destabilizing expectations. We find forecasting tendencies to strengthen in the short-run and medium-run when controlling for the Balassa-Samuelson effect. For long-run forecasts however this can not be confirmed.

Keywords: Foreign exchange; forecast bias; expectation formation; chartist; fundamentalist; Balassa-Samuelson (search for similar items in EconPapers)
JEL-codes: C33 D84 F31 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2017-04-26
New Economics Papers: this item is included in nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://nbn-resolving.org/urn:nbn:de:hbz:992-opus4-4036 First version, 2017 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:whu:wpaper:17-04

Access Statistics for this paper

More papers in WHU Working Paper Series - Economics Group from WHU - Otto Beisheim School of Management Contact information at EDIRC.
Bibliographic data for series maintained by Rainer Michael Rilke ().