The Relation Between Overreaction in Forecasts and Uncertainty: A Nonlinear Approach

Abstract

The results show that forecast changes are governed by overreaction. However, overreaction is markedly reduced when high levels of uncertainty prevail. On the other hand, noisy signals and positive oil price returns tend to cause higher overreaction.

Heterogeneity of beliefs and information rigidity in the crude oil market: Evidence from survey data

“…More generally, the present paper also relates to the modeling of oil price expectations. Market expectations for the price of crude oil may be either estimated from futures prices (Baumeister and Kilian, 2016) or proxied by a survey of professional forecasters (Reitz et al, 2012;Leppin, 2016). The present study follows the second approach as we aim to examine the expectations formation and information processing of forecasters.…”

“…The present study follows the second approach as we aim to examine the expectations formation and information processing of forecasters. Studies assessing survey-based crude oil price forecasts relying on different data sources include Prat and Uctum (2011), Reitz et al (2012), Alquist et al (2013), Leppin (2016), Kunze et al (2018) and Moghaddam et al (2019). Overall, these studies show that the concepts of rational expectations and unbiasedness are rejected for survey forecasts and therefore also highlight the need to study the expectations formation mechanism of professionals involved in the crude oil market.…”

“…This dataset has often been used in the literature to evaluate forecasts and/or disagreement among forecasters regarding inflation, GDP growth and unemployment (see e.g.,Andrade and Le Bihan, 2013;Dovern, 2015;Abel et al, 2016;Glas, 2020) and regarding the Brent crude oil price (seeReitz et al, 2012;Atalla et al, 2016;Leppin, 2016). The benefit of this survey dataset compared with the often considered dataset provided by Consensus Economics is that the data of the ECB SPF is freely available on the website of the ECB and therefore facilitates replication.…”