Template-type: ReDIF-Paper 1.0
Author-Name: Chia-Lin Chang
Author-Email: changchialin@nchu.edu.tw
Author-Person: pch286 
Author-Workplace-Name: Department of Applied Economics, Department of Finance, National Chung Hsing University, Taiwan
Author-Name: Bert de Bruijn
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam
Author-Name: Philip Hans Franses
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam
Author-Name: Michael McAleer
Author-Person: pmc90 
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute,
	The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of
	Economic Research, Kyoto University. 
Title: Analyzing Fixed-event Forecast Revisions
Abstract: It is common practice to evaluate fixed-event forecast revisions in macroeconomics by regressing current 
	forecast revisions on one-period lagged forecast revisions. Under
 weak-form (forecast) efficiency, the 
	correlation between the current and one-period lagged revisions should be zero. The empirical findings in 
	the literature suggest that this
 null hypothesis of zero correlation is rejected frequently, where the 
	correlation can be either positive (which is widely interpreted in the literature as “smoothing”) or 
	negative (which is widely interpreted as “over-reacting”). We propose a methodology to interpret such 
	non-zero correlations in a straightforward and clear manner. Our approach is based on the assumption that 
	numerical forecasts can be decomposed into both an econometric model and random expert intuition. We show 
	that the interpretation of the sign of the correlation between the current and one-period lagged revisions 
	depends on the process governing intuition, and the current and lagged correlations between intuition and 
	news (or shocks to the numerical forecasts). It follows that the estimated non-zero correlation cannot be 
	given a direct interpretation in terms of smoothing or overreaction.

Classification-JEL: C22, C53, E27, E37.

Keywords: Evaluating forecasts, Macroeconomic forecasting, Rationality, Intuition, Weak-form efficiency, Fixed-event forecasts.
Length: 22 pages 
Creation-Date: 2013 
Revision-Date: 2013-04 
Number: 2013-14 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1314.txt
File-URL: https://eprints.ucm.es/id/eprint/20834/1/1314.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1314