The influence of trend strength on directional probabilistic currency predictions
Thomson, M. E.
Pollock, A. C.
International Journal of Forecasting
241 - 256
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An experiment is reported which compares the judgmental forecasting performance of experts and novices using simulated currency series with differing trend strengths. Analyses of directional probability forecasts reveal: (1) significant effects of trend strength on all aspects of predictive performance being studied, with evidence for the hard-easy effect where overconfidence is exhibited on weak (i.e., more difficult) trends, while underconfidence is shown on strong (i.e., less difficult) trends; (2) lower performance of experts on relative accuracy and profitability measures, reflecting experts' resistance to strong trends; (3) better overall performance on negative trends; and (4) superior performance of composite forecasts. Possible explanations are offered for these results and future research directions are outlined.