Forecasters as imperfect information processors: experimental and survey evidence

Article Abstract:

A study shows that deviation of time paths is proportional to the rational expectation of a forecast. An analysis of student and professional forecasts reveals that an increased of 0.9% deviation from rational expectations results whenever the standard deviation of random error increases by 1%. The deviation in forecasting is best reflected in the stock market where changes in stock prices further results to larger changes due to a belief that stock price changes indicate decreased investment confidence.

Securities and Commodity Exchanges, Securities Exchanges, Forecasting, Research, Exchanges, Business forecasting

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Are stock prices excessively sensitive to current information?

Article Abstract:

The conclusion that the stock market is excessively volatile is defended against criticisms. C. Gilles and S.F. LeRoy's work, which claims that excessive volatility is increasingly accepted as a stylized fact, is cited. Criticisms made regarding small sample bias and stationarity are disputed but those concerning cross-sectional versus time series analysis and incorrect definitions are accepted.

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Are stock prices excessively sensitive to current information?

Article Abstract:

The use of a finite sample statistic in testing excessive stock market volatility without considering the sample distribution is criticized. Small sample statistics tend to be biased estimates of population parameters. Setting point estimates without an indication of the small sample distribution is inadequate as evidence that stock prices overreact to information about short run changes.

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