Analysts versus the random walk in financial forecasting: evidence from the Czech National Bank’s Financial Market Inflation Expectations survey

Kamil Kladívko and Pär Österholm

Applied Economics, 2024, vol. 56, issue 17, 2077-2088

Abstract: We analyse how financial market analysts’ expectations in the Czech National Bank’s Financial Market Inflation Expectations survey perform relative to the random-walk forecast when it comes to predicting five financial variables. Using data from 2001 to 2022, our results indicate that the analysts are able to significantly outperform the random-walk forecast in terms of forecast precision for the repo rate and Prague Interbank Offered Rate at the one-month forecasting horizon. For the five- and ten-year interest rate swap rates, the random walk significantly outperforms the analysts at both the one-month and one-year forecasting horizons. For the CZK/EUR exchange rate, the random-walk forecast has a lower root mean squared forecast error than that of the analysts’ forecast at the one-month horizon whereas at the one-year horizon the opposite is found; however, none of these differences are statistically significant.

Date: 2024
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Working Paper: Analysts versus the Random Walk in Financial Forecasting: Evidence from the Czech National Bank’s Financial Market Inflation Expectations Survey (2022)
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DOI: 10.1080/00036846.2023.2178633

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