Predictability in financial markets: What do survey expectations tell us?

Bacchetta, Philippe; Mertens, Elmar; Wincoop, Eric van

doi:10.1016/j.jimonfin.2008.09.001

Cited by 212 publications

(75 citation statements)

References 39 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Similarly, Romer and Romer (2004) show that monetary policy shocks drawn from the Fed's Taylor rule conditional on its historical forecasts eliminate the price puzzle identified in previous work. Piazzesi and Schneider (2008), Gourinchas and Tornell (2004) and Bacchetta, Mertens, and van Wincoop (2009) all identify links between systematic forecast errors in survey forecasts and puzzles in various financial markets. Yet despite this resurgent focus on the nature of the expectations formation process, little empirical evidence exists on the size and nature of information rigidities.…”

Section: Introductionmentioning

confidence: 93%

What Can Survey Forecasts Tell Us About Informational Rigidities?

Coibion

Gorodnichenko

2009

SSRN Journal

View full text Add to dashboard Cite

A lot. We derive a number of common and conflicting predictions from models in which agents face information constraints, then use surveys of forecasts from professional forecasters, consumers, firms and central bankers to assess their validity. Our key contribution is to document that in response to shocks, mean forecasts fail to completely adjust on impact, leading to statistically and economically significant deviations from the null of full information. The dynamic process followed by forecast errors after a shock is consistent with the predictions of models of information rigidities. In addition, we illustrate how the conditional responses of forecast errors and disagreement among agents can be used in conjunction with survey data of agents' forecasts to differentiate between some of the most prominent models of information rigidities.

show abstract

Section: Introductionmentioning

confidence: 93%

What Can Survey Forecasts Tell Us About Informational Rigidities?

Coibion

Gorodnichenko

2009

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…UIP failed to hold at short horizons. Rather than depreciating as UIP predicted, high interest currencies were found to generally appreciate (Hodrick 1987;Engel, 1996;Bacchetta et al, 2009). Even covered interest rate parity (CIP) did not hold during turbulent periods (Taylor 1989).…”

mentioning

confidence: 92%

The market microstructure approach to foreign exchange: Looking back and looking forward

King

Osler

Rime³

2013

Journal of International Money and Finance

View full text Add to dashboard Cite

Research on foreign exchange (FX) market microstructure stresses the importance of order flow, heterogeneity among agents, and private information as crucial determinants of short-run exchange rate dynamics. Microstructure researchers have produced empirically-driven models that fit the data surprisingly well. But currency markets are evolving rapidly in response to new electronic trading technologies. Transparency has risen, trading costs have tumbled, and transaction speed has accelerated as new players have entered the market and existing players have modified their behavior. These changes will have profound effects on exchange rate dynamics. Looking forward, we highlight fundamental yet unanswered questions on the nature of private information, the impact on market liquidity, and the changing process of price discovery.We also outline potential microstructure explanations for long-standing exchange rate puzzles. JEL Classification: F31, G12, G15, C42, C82.

show abstract

“…Gourinchas and Tornell (2004) find that the deviation from rational expectations has crucial implications for the currency forward premium and delayed exchange rate puzzles. Bacchetta, Mertens and Van Wincoop (2009) show that the predictability of excess returns across a broad range of assets is closely related to the explanation for the expectation errors of market participants. Piazzesi and Schneider (2011) find that the surveyed forecasts of interest rates help solve the puzzles concerning long-term bond risk premia.…”

Section: Lists Of Tables and Figuresmentioning

confidence: 95%

Exchange Rate Dynamics, Expectations, and Monetary Policy

Chen

2011

SSRN Journal

View full text Add to dashboard Cite

This paper re-investigates the implications of monetary policy rules on changes in exchange rate, in a risk-adjusted, uncovered interest parity model with unrestricted parameters, emphasizing the importance of modeling market expectations of monetary policy. I use consensus forecasts as a proxy for market expectations. The analysis on the Deutsche mark, Canadian dollar, Japanese yen, and the British pound relative to the U.S. dollar from 1979 to 2008 shows that, through the expectations of future monetary policy, Taylor rule fundamentals are able to forecast changes in the exchange rate, even over short-term horizons of less than two years. Furthermore, the market expectation formation processes of short-term interest rates change over time and differ across countries, which contributes to the time varying relationship between exchange rates and macroeconomic fundamentals, together with the time varying currency risk premia and exchange rate forecast errors.Keywords: Exchange Rate, Monetary Policy, Expectation, Learning, VAR, Consensus Forecast. JEL-Classification: F31, E52, D83, C32 Non technical summarySince the study by Meese and Rogoff (1983), the literature has favored the view that exchange rate dynamics are unrelated to macroeconomic fundamentals. Exchange rate models with macroeconomic fundamentals, exogenous money supply, and rational expectations cannot outperform the random walk model for forecasting exchange rate changes over short to medium horizons, although they gain empirical support in the case Nichttechnische ZusammenfassungSeit der Studie von Meese und Rogoff (1983)

show abstract

Predictability in financial markets: What do survey expectations tell us?

Cited by 212 publications

References 39 publications

What Can Survey Forecasts Tell Us About Informational Rigidities?

What Can Survey Forecasts Tell Us About Informational Rigidities?

The market microstructure approach to foreign exchange: Looking back and looking forward

Exchange Rate Dynamics, Expectations, and Monetary Policy

Contact Info

Product

Resources

About