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Analyzing Fixed-event Forecast Revisions

Author

Listed:
  • Philip Hans Franses

    (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam)

  • Chia-Lin Chang

    (Department of Applied Economics, Department of Finance, National Chung Hsing University Taichung, Taiwan)

  • Michael McAleer

    (Econometrisch Instituut (Econometric Institute), Faculteit der Economische Wetenschappen (Erasmus School of Economics), Erasmus Universiteit, Tinbergen Instituut (Tinbergen Institute).)

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.

Suggested Citation

  • Philip Hans Franses & Chia-Lin Chang & Michael McAleer, 2011. "Analyzing Fixed-event Forecast Revisions," Documentos de Trabajo del ICAE 2011-24, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    • Handle: RePEc:ucm:doicae:1124
    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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    References listed on IDEAS

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    11. Philip Hans Franses & Rianne Legerstee, 2010. "Do experts' adjustments on model-based SKU-level forecasts improve forecast quality?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(3), pages 331-340.
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    2. Messina, Jeffrey D. & Sinclair, Tara M. & Stekler, Herman, 2015. "What can we learn from revisions to the Greenbook forecasts?," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 54-62.
    3. Chia-Lin Chang & Yu-Pei Ke, 2014. "Testing Price Pressure, Information, Feedback Trading, And Smoothing Effects For Energy Exchange Traded Funds," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-26.
    4. Tian, Jing & Goodwin, Thomas, 2018. "An unobserved component modeling approach to evaluate multi-horizon forecasts," Working Papers 2018-04, University of Tasmania, Tasmanian School of Business and Economics.
    5. Iregui, Ana María & Núñez, Héctor M. & Otero, Jesús, 2021. "Testing the efficiency of inflation and exchange rate forecast revisions in a changing economic environment," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 290-314.

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    More about this item

    Keywords

    Evaluating forecasts; Macroeconomic forecasting; Rationality; Intuition; Weak-form efficiency; Fixed-event forecasts.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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