On the accuracy of Blue Chip forecasts of interest rates and country risk premiums

Baghestani, Hamid; Arzaghi, Mohammad; Kaya, Ilker

doi:10.1080/00036846.2014.959656

Cited by 18 publications

(12 citation statements)

References 25 publications

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“…Consistent with the theory, empirical findings are mixed for the survey forecasts of short-term interest rates. For instance, Baghestani, Arzaghi, and Kaya (2015) examine the accuracy of the Blue Chip survey forecasts of 3-month Euro currency rates and 10-year government bond rates for the Eurozone, Australia, Canada, Japan, Switzerland, the UK, and the US for 1999-2008. They find that nearly half of the short-term interest rate forecasts are superior to the random walk.…”

Section: Literature Reviewmentioning

confidence: 99%

Long-term interest rate predictability: Exploring the usefulness of survey forecasts of growth and inflation

Baghestani

2019

Cogent Economics & Finance

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This study focuses on the consensus forecasts from the Survey of Professional Forecasters (SPF) for 1993-2017. These include the SPF forecasts of US 10-year Treasury rate (TBR), Moody's Aaa corporate bond rate (Aaa), CPI inflation, and real GDP growth. We show that both SPF and random walk forecasts of TBR and Aaa generally fail to be orthogonal to changes in SPF inflation (but not growth) forecasts. Such findings point to the potential usefulness of SPF inflation forecasts in improving the accuracy of SPF and random walk forecasts of TBR and Aaa. Further results indicate that changes in SPF inflation forecasts accurately predict directional change in both TBR and Aaa at longer forecast horizons for 2008-2017 (but not for 1993-2007). These latter results raise the question of whether long-term interest rates have become easier to predict, which deserves subsequent research.

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Section: Literature Reviewmentioning

confidence: 99%

Long-term interest rate predictability: Exploring the usefulness of survey forecasts of growth and inflation

Baghestani

2019

Cogent Economics & Finance

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“…Regulators who authorize a future test year, in which utility rates are set based on expected, not historical, costs, could mitigate some of the impacts by reflecting the inflationary aspects that typically accompany rising interest rates. However, forecasting changes to long-term interest rates themselves over a future test year lacks a solid financial basis since interest rate changes cannot be predicted with any degree of accuracy, even by financial experts (Baghestani et al 2015).…”

Section: Discussion and Policy Implicationsmentioning

confidence: 99%

The Effects of Rising Interest Rates on Electric Utility Stock Prices: Regulatory Considerations and Approaches

Kihm

Satchwell

Cappers

2017

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This technical brief identifies conditions under which utility regulators should consider implementing policy approaches that seek to mitigate negative outcomes due to an increase in interest rates. Interest rates are a key factor in determining a utility's cost of equity and investors find value when returns exceed the cost of equity. Through historical observations of periods of rising and falling interest rates and application of a pro forma financial tool, we identify the key drivers of utility stock valuations and estimate the degree to which those valuations might be affected by increasing interest rates. 3 We also analyze the efficacy of responses by utility regulators to mitigate potential negative financial impacts. We find that regulators have several possible approaches to mitigate a decline in value in an environment of increasing interest rates, though regulators must weigh the tradeoffs of improving investor value with potential increases in customer costs. Furthermore, the range of approaches reflects today's many different electric utility regulatory models and regulatory responses to a decline in investor value will fit within state-specific models.

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“…Following a standard approach in the context of forecast evaluation (see, e.g., Beechey & Österholm, ; as well as Baghestani, Arzaghi, & Kaya, ), we start our empirical analysis with the test for unbiasedness, followed by the sign accuracy test and the test for forecast encompassing. In a second step, we apply widely acknowledged forecast accuracy measures.…”

Section: Methodologies Of Forecast Evaluationmentioning

confidence: 99%

“…By applying the sign accuracy test, we investigate the directional accuracy of the forecasts provided (see, e.g., Baghestani, ; Baghestani et al, ; Diebold & Lopez, ; Greer, ; Kolb & Stekler, ; Mitchell & Pearce, 2006; as well as Spiwoks, Bedke, & Hein, ). Following—for example—Spiwoks et al (), we first use a 2‐by‐2 contingency table.…”

Section: Methodologies Of Forecast Evaluationmentioning

confidence: 99%

The usefulness of oil price forecasts—Evidence from survey predictions

et al. 2018

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JEL Classification: D81; F37; F47This paper evaluates survey forecasts for crude oil prices and discusses the implications for decision makers. A novel disaggregated data set incorporating individual forecasts for Brent and Western Texas Intermediate is used. We carry out tests for unbiasedness, sign accuracy, and forecast encompassing, followed by the computation of coefficients for topically oriented trend adjustments and the Theil's U measure. We also control for the forecast horizon finding heterogeneous results. Forecasts are more precise for shorter horizons, but less accurate than the naïve prediction. For longer horizons, topically oriented trend adjustments become more pronounced, but forecasters tend to outperform the naïve predictions.

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On the accuracy of Blue Chip forecasts of interest rates and country risk premiums

Cited by 18 publications

References 25 publications

Long-term interest rate predictability: Exploring the usefulness of survey forecasts of growth and inflation

Long-term interest rate predictability: Exploring the usefulness of survey forecasts of growth and inflation

The Effects of Rising Interest Rates on Electric Utility Stock Prices: Regulatory Considerations and Approaches

The usefulness of oil price forecasts—Evidence from survey predictions

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