Asymmetric loss and herding behaviour of exchange rate forecasters: evidence from South Africa

Y. Tsuchiya, T. Kato

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

This study examines the asymmetry of the loss function for private forecasters in exchange rate forecasts of the South African rand. It tests rationality under the possibility of an asymmetric loss function. The results indicate less evidence of asymmetry for a horizon of 1 month but considerable evidence of asymmetry for a horizon of 3 months. However, the shapes of the distributions formed by estimated asymmetry parameters of sub-samples for each forecaster are symmetric, regardless of the forecast horizons, which implies that these forecasters do not herd or antiherd. In fact, the results of our empirical herding test show that forecasters neither herd nor antiherd, which is in sharp contrast to recent findings on antiherding for foreign exchange rates in emerging market economies. Our findings provide consistent evidence for a recent suggestion that antiherding might result in the rejection of rationality, even under asymmetric loss functions. Our findings also suggest that central bank transparency might be associated with herding behaviours.

Original languageEnglish
Pages (from-to)5841-5852
Number of pages12
JournalApplied Economics
Volume47
Issue number54
DOIs
Publication statusPublished - 2015 Nov 20
Externally publishedYes

Keywords

  • asymmetric loss
  • emerging markets
  • forecast evaluation
  • herding
  • rationality

ASJC Scopus subject areas

  • Economics and Econometrics

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