Analyzing Fixed-event Forecast Revisions

Philip Hans Franses, Chia-Lin Chang and Michael McAleer

No 2011-24, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: It is common practice to evaluate fixed-event forecast revisions in macroeconomics by regressing current revisions on one-period lagged revisions. Under weak-form efficiency, the correlation between the current and one-period lagged revisions should be zero. The empirical findings in the literature suggest that the null hypothesis of zero correlation between the current and one-period lagged revisions is rejected quite frequently, where the correlation can be either positive or negative. In this paper we propose a methodology to be able to interpret such non-zero correlations in a straightforward manner. Our approach is based on the assumption that forecasts can be decomposed into both an econometric model and expert intuition. The interpretation of the sign of the correlation between the current and one-period lagged revisions depends on the process governing intuition, and the correlation between intuition and news.

Keywords: Evaluating forecasts; Macroeconomic forecasting; Rationality; Intuition; Weak-form efficiency; Fixed-event forecasts. (search for similar items in EconPapers)
JEL-codes: C22 C53 E27 E37 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2011
New Economics Papers: this item is included in nep-cba and nep-for
Note: The authors are grateful for the helpful comments and suggestions of seminar participants at Complutense University of Madrid. For financial support, the second author acknowledges the National Science Council, Taiwan, and the third author wishes to thank the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science.
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Downloads: (external link)
https://eprints.ucm.es/id/eprint/12883/1/1124.pdf june 2011 (application/pdf)

Related works:
Journal Article: Analyzing fixed-event forecast revisions (2013)
Working Paper: Analyzing Fixed-Event Forecast Revisions (2013)
Working Paper: Analyzing Fixed-event Forecast Revisions (2013)
Working Paper: Analyzing Fixed-event Forecast Revisions (2011)
Working Paper: Analyzing Fixed-event Forecast Revisions (2011)
Working Paper: Analyzing Fixed-event Forecast Revisions (2011)
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