Discussion Paper Series 2012-E-6

Financial Markets Forecasts Revisited:
Are they Rational, Herding or Bold?

Ippei Fujiwara, Hibiki Ichiue, Yoshiyuki Nakazono, Yosuke Shigemi

We test whether professional forecasters forecast rationally or behaviorally using a unique database, QSS Database, which is the monthly panel of forecasts on Japanese stock prices and bond yields. The estimation results show that (i) professional forecasts are behavioral, namely, significantly influenced by past forecasts, (ii) there exists a stock-bond dissonance: while forecasting behavior in the stock market seems to be herding, that in the bond market seems to be bold in the sense that their current forecasts tend to be negatively related to past forecasts, and (iii) the dissonance is due, at least partially, to the individual forecasters’ behavior that is influenced by their own past forecasts rather than others’. Even in the same country, forecasting behavior is quite different by market.

Keywords: Anchoring; Bold; Herding; Survey Forecasts

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 2012 Bank of Japan All Rights Reserved.

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