The strategy of professional forecasting

Publikation: Bidrag til tidsskriftTidsskriftartikelfagfællebedømt

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We develop and compare two theories of professional forecasters’ strategic behavior. The first theory, reputational cheap talk, posits that forecasters endeavor to convince the market that they are well informed. The market evaluates their forecasting talent on the basis of the forecasts and the realized state. If the market expects forecasters to report their posterior expectations honestly, then forecasts are shaded toward the prior mean. With correct market expectations, equilibrium forecasts are imprecise but not shaded. The second theory posits that forecasters compete in a forecasting contest with pre-specified rules. In a winner-take-all contest, equilibrium forecasts are excessively differentiated
OriginalsprogEngelsk
TidsskriftJournal of Financial Economics
Vol/bind81
Udgave nummer2
Sider (fra-til)441-466
ISSN0304-405X
DOI
StatusUdgivet - 2006

Bibliografisk note

JEL Classification: D82, G29

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