1. Department of Statistics and Operations Research, University of Graz, Universit?tsstrasse 15/E3, 8010, Graz, Austria 2. Department of Economics, University of Würzbrug, Sanderring 2, D-97070, Würzburg, Germany
Abstract:
Professional forecasters in foreign exchange markets are not able to beat naive forecasts. In order to find reasons for this
phenomenon we compare the empirical forecasts of experts with the experimentally generated forecasts of novices for the EUR/USD
exchange rate in three different forecast horizons. Although the subjects are only provided with the realizations of the exchange
rate and are not supported by any statistical procedures they outperform experts in accuracy. Professionals consistently expect
a reversal of forgoing exchange rate changes whereas novices extrapolate trends. The judgemental forecasts appear to be unbiased
and professionals appear to be biased. We demonstrate that professionals are influenced by the fundamental value—an irrelevant
anchor in speculative exchange markets. The poor performance of the experts is not a common failure of human decision-making
in market environments but caused by misleading information.