Should one rely on professional exchange rate forecasts: An empirical analysis of professional forecasts for the €/US-$ rate

Peter Bofinger () and Robert Schmidt

No 38, W.E.P. - Würzburg Economic Papers from University of Würzburg, Department of Economics

Abstract: The study analyses the characteristics of professional exchange rate forecasts for the €/US-$ rate. The results indicate that the quality of forecasts produced by profes-sional economists is rather poor and incompatible with the rational expectations hy-pothesis. This dismal result is according to our analysis attributed to the fact that professional forecasts are to a large extend influenced by actual changes in exchange rates. A reasonable explanation for this behaviour can be derived from the behav-ioural finance literature. According to the anchoring heuristic decision processes are often dominated by available pieces of information even if they are obviously of no relevance.

Keywords: foreign exchange market; rational expectations; forecasts; behavioural finance; anchoring heuristics (search for similar items in EconPapers)
JEL-codes: F31 F47 G12 G15 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wuewep:38

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