Testing the Properties of Financial Analysts’ Predictions of Future Spot Exchange Rates (Example of CZK/EUR)
Year: 2021 Volume: 71 Issue: 1 Pages: 33-51
Abstract: Exchange rate expectations play a key role in several theoretical concepts of international economics. Unfortunately, direct testing of the empirical validity was limited as information about expected future exchange rates was not available and was often replaced by future spot exchange rates or forward rates. This paper used direct exchange rate expectations as a result of a regular survey conducted by the Czech National Bank for the CZK/EUR currency pair on a one-month and one-year horizon. Using econometric tools testing the rational expectations hypothesis and alternative forms of extrapolative and adaptive expectations for the two time periods of 5/1999-12/2007 and 1/2008-12/2019, a conclusion can be drawn that the periods are statistically different. Regarding the formation of expectations, the rational expectations approach was not approved. Nevertheless, properties of extrapolative and adaptive expectations for certain periods and horizons were detected.
JEL classification: F31, E47, G17
Keywords: Exchange rate forecasting, rational expectations hypothesis, adaptive expectations
DOI: https://doi.org/10.32065/CJEF.2021.01.02
RePEc: https://ideas.repec.org/a/fau/fauart/v71y2021i1p33-51.html
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