Performance evaluation of judgemental directional exchange rate predictions
Author
Pollock, A. C.
Macaulay, A.
Thomson, M. E.
Önkal, D.
Date
2005Source Title
International Journal of Forecasting
Print ISSN
0169-2070
Electronic ISSN
1872-8200
Publisher
Elsevier
Volume
21
Issue
3
Pages
473 - 489
Language
English
Type
ArticleItem Usage Stats
98
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108
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Abstract
A procedure is proposed for examining different aspects of performance for judgemental directional probability predictions
of exchange rate movements. In particular, a range of new predictive performance measures is identified to highlight specific
expressions of strengths and weaknesses in judgemental directional forecasts. Proposed performance qualifiers extend the
existing accuracy measures, enabling detailed comparisons of probability forecasts with ex-post empirical probabilities that are
derived from changes in the logarithms of the series. This provides a multi-faceted evaluation that is straightforward for
practitioners to implement, while affording the flexibility of being used in situations where the time intervals between the
predictions have variable lengths. The proposed procedure is illustrated via an application to a set of directional probability
exchange rate forecasts for the US Dollar/Swiss Franc from 23/7/96 to 7/12/99 and the findings are discussed.