Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/182453
Authors: 
Félix, Luiz
Kräussl, Roman
Stork, Philip
Year of Publication: 
2018
Series/Report no.: 
CFS Working Paper Series 596
Abstract: 
This paper investigates how biases in macroeconomic forecasts are associated with economic surprises and market responses across asset classes around US data announcements. We find that the skewness of the distribution of economic forecasts is a strong predictor of economic surprises, suggesting that forecasters behave strategically (rational bias) and possess private information. Our results also show that consensus forecasts of US macroeconomic releases embed anchoring. Under these conditions, both economic surprises and the returns of assets that are sensitive to macroeconomic conditions are predictable. Our findings indicate that local equities and bond markets are more predictable than foreign markets, currencies and commodities. Economic surprises are found to link to asset returns very distinctively through the stages of the economic cycle, whereas they strongly depend on economic releases being inflation- or growth-related. Yet, when forecasters fail to correctly forecast the direction of economic surprises, regret becomes a relevant cognitive bias to explain asset price responses. We find that the behavioral and rational biases encountered in US economic forecasting also exists in Continental Europe, the United Kingdom and Japan, albeit, to a lesser extent.
Subjects: 
anchoring
rational bias
economic surprises
predictability
stocks
bonds
currencies
commodities
machine learning
JEL: 
G14
F47
E44
Document Type: 
Working Paper
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