Can we beat the Random Walk? The case of survey-based exchange rate forecasts in Chile

Pablo Pincheira and Federico Neumann

Finance Research Letters, 2020, vol. 37, issue C

Abstract: We examine the accuracy of survey-based expectations of the Chilean exchange rate relative to the US dollar. Our out-of-sample analysis reveals that survey-based forecasts outperform the driftless random walk in terms of mean squared prediction error at several forecasting horizons. A similar result is found when precision is measured in a direction-of-change dimension: survey-based forecasts outperform a “pure luck” benchmark at several forecasting horizons. Our findings suggest that survey-based forecasts of the Chilean exchange rate should be considered as a tough benchmark to beat for economic models, tougher indeed than the traditional driftless random walk.

Keywords: Survey expectations; Exchange Rates; Forecasting; Random Walk; Mean Squared Prediction Error (search for similar items in EconPapers)
JEL-codes: C01 C32 C52 C53 C58 E27 E37 F37 G11 G17 L74 O18 R31 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Can we beat the Random Walk? The case of survey-based exchange rate forecasts in Chile (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:37:y:2020:i:c:s1544612319304477

DOI: 10.1016/j.frl.2019.101380

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