Exchange Rate Forecasters' Performance: Evidence of Skill?

Ronald MacDonald (), Lukas Menkhoff () and Rafael R. Rebitzky ()

No CESifo Working Paper No. 2615, CESifo Working Paper Series from CESifo Group Munich

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 (search for similar items in EconPapers)
JEL-codes: F31 G14 (search for similar items in EconPapers)
Date: 2009
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Working Paper: Exchange rate forecasters’ performance: evidence of skill? (2009)
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