Financial forecasting with judgement

Abstract

Judgment plays a prominent role in financial forecasting. This chapter reviews previous work on judgmental forecasting of critical financial variables like earnings, exchange rates, stock prices and interest rates. Forecasting accuracy of judgmental point, categorical and probability forecasts are examined with a special focus on the effects of expertise, forecast horizon, task format and contextual information. It is concluded that future research into the needs of both providers and users of judgmental forecasts is crucial for the dissemination of financial knowledge and uncertainty. Within this framework, it is argued that the issues of information utilization, use of heuristics and resultant biases, combining of judgmental forecasts, and investigations of the effects of feedback and different elicitation formats on forecasting accuracy remain important directions for future financial forecasting research.