An exploratory analysis of portfolio managers' probabilistic forecasts of stock prices

This study reports the results of an experiment that examines (1) the effects of forecast horizon on the performance of probability forecasters, and (2) the alleged existence of an inverse expertise effect, i.e., an inverse relationship between expertise and probabilistic forecasting performance. Portfolio managers are used as forecasters with substantive expertise. Performance of this ‘expert’ group is compared to the performance of a ‘semi-expert’ group composed of other banking professionals trained in portfolio management. It is found that while both groups attain their best discrimination performances in the four-week forecast horizon, they show their worst calibration and skill performances in the 12-week forecast horizon. Also, while experts perform better in all performance measures for the one-week horizon, semi-experts achieve better calibration for the four-week horizon. It is concluded that these results may signal the existence of an inverse expertise effect that is contingent on the selected forecast horizon.     

Combining exchange rate forecasts: What is the optimal consensus measure?

In this paper a high-quality disaggregate database is utilized to examine whether individual forecasters produce efficient exchange rate predictions and also if the properties of the forecasts change when they are combined. The paper links a number of themes in the exchange rate literature and examines various methods of forecast combination. It is demonstrated, inter alia, that some forecasters are better than others, but that most are not as good as a naive no-change prediction. Combining forecasts adds to the accuracy of the predictions, but the gains mainly reflect the removal of systematic and unstable bias.     

Are forecasters reluctant to revise their predictions? Some German evidence

People are reluctant to admit mistakes. This could also be true of economic forecasters. If revisions of past forecasts are costly, then it will become optimal for forecasters to only partially adjust a past forecast in the light of new information. The unwillingness to admit to the mistake in the old forecast generates a bias of the new forecast in the direction of the old forecast. We test this hypothesis for the joint predictions of the Association of German Economic Research Institutes over the last 35 years. We find some evidence for such a bias and compute the implied unwillingness to revise forecasts. Copyright © 2006 John Wiley & Sons, Ltd.     

Overreaction in Survey Exchange Rate Forecasts

We use survey data on five bilateral exchange rates to provide empirical evidence of the fact that professional forecasters of foreign exchange rates behave irrationally, in the specific sense that they respond inaccurately to available information in the market when forming their predictions. In particular, we find systematic biases in the forecasts resulting in the overreaction of analysts to past information contained in the exchange rate dynamics: forecasters change their prediction more than it would be rational on the basis of past realized changes. In addition, forecasters are heterogeneous in their irrationality: low performers in previous periods show a more pronounced overreaction effect. This can be read as an indication of perpetration of past errors and continued inability to learn from the past. In the second part of the paper, we exploit the novel structure of our dataset, which consists of survey data extracted from the Bloomberg platform and readily available to anyone. This feature allows us to consider their own and others' past forecasts as part of the information set that analysts use in making their predictions. By using past forecasts as proxies for relevant macroeconomic variables, we find evidence that analysts fail to correctly process not only the information contained in the spot rate past dynamics but also the information in this broader set. We see this as confirmation of the existence of inefficiency and heterogeneity between low and high performers also when full information is available. Copyright © 2014 John Wiley & Sons, Ltd.     

The evolution of BioBike: Community adaptation of a biocomputing platform

Programming languages are, at the same time, instruments and communicative artifacts that evolve rapidly through use. In this paper I describe an online computing platform called BioBike. BioBike is a trading zone where biologists and programmers collaborate in the development of an extended vocabulary and functionality for computational genomics. In the course of this work they develop interactional expertise with one another’s domains. The extended BioBike vocabulary operates on two planes: as a working programming language, and as a pidgin in the conversation between the biologists and engineers. The flexibility that permits this community to dynamically extend BioBike’s working vocabulary—to form new pidgins—makes BioBike unique among computational tools, which usually are not themselves adapted through the collaborations that they facilitate. Thus BioBike is itself a crucial feature—which it is tempting to refer to as a participant—in the developing interaction.     

Symmetry, asymmetry, and the real possibility of radical change: reply to Kochan

In his critique of my book Heidegger and Marcuse, Jeff Kochan (2006) asserts that I am committed to the possibility of private knowledge, transcendent truths, and individualism. In this reply I argue that he has misinterpreted my analysis of the Challenger disaster and Marcuse’s work. Because I do not dismiss Roger Boisjoly’s doubts about the Challenger launch, Kochan believes that I have abandoned a social concept of knowledge for a reliance on the private knowledge of a single individual. In fact, I consider Boisjoly’s observations just as social, if not as scientific, as the results of rigorous scientific study. Kochan’s reliance on a principle of symmetry derived from science studies to explain such politically charged technological controversies tends to mask the role of power and ideology in social life. Kochan interprets Marcuse as a failed Heideggerian who regresses from Heidegger’s social conception of human being to traditional individualism. I am accused of sharing this view. This interpretation overlooks the importance of the Hegelian–Marxist category of ‘real possibility’ in Marcuse’s work and so mistakes his critique of conformist politics for individualist romanticism. Marcuse always attempted to ground radical opposition in a community of struggle without abandoning the heritage of a long critical tradition. This view I willingly share.     

The uses and abuses of ‘consensus’ forecasts

Clemen's (1989) review of the forecast-combining literature amply illustrates both the interest in and the importance of this subject. This article stresses the tautological properties of various consensus measures that assure their success relative to most individual forecasts. It confirms the finding of earlier studies that for each specific macroeconomic variable roughly one-third of individual forecasters are more accurate than a consensus. However, each individual does relatively poorly for some variable while the consensus, in contrast, necessarily never fails relative to most individuals. These results, like most previous studies, describe consensus measures that are synthetic constructs derived from a pre-existing set of individual forecasts. Strictly speaking, this contemporaneous consensus is not available to individual forecasters when their forecasts are made. A prior consensus measure, which is in their information sets, was relatively much less accurate than the contemporaneous measure. Nevertheless, a small subset of individual forecasters were generally inferior to the known, prior consensus forecast.     

Bayesian consensus forecasts of macroeconomic variables

Economists, like other forecasters, share knowledge, data and theories in common. Consequently, their forecast errors are likely to be highly dependent. This paper reports on an empirical study of 16 macroeconomic forecasters. Composite forecasts are computed using a sequential weighting scheme that takes dependence into account; these are compared to a simple average and median forecasts. A within-sample composite is also calculated. Both these methods perform significantly better than the average or median of the forecasts. This improvement in accuracy is apparently because the dependence between the forecasters' errors is so high that the optimal composite forecasts sometimes lie outside the range of the individual forecasts.     

Estimation and Prediction Tests of Cash Flow Forecast Accuracy

Recently, analysts' cash flow forecasts have become widely available through financial information services. Cash flow information enables practitioners to better understand the real operating performance and financial stability of a company, particularly when earnings information is noisy and of low quality. However, research suggests that analysts' cash flow forecasts are less accurate and more dispersed than earnings forecasts. We thus investigate factors influencing cash flow forecast accuracy and build a practical model to distinguish more accurate from less accurate cash flow forecasters, using past cash flow forecast accuracy and analyst characteristics. We find significant power in our cash flow forecast accuracy prediction models. We also find that analysts develop cash flow‐specific forecasting expertise and knowhow, which are distinct from those that analysts acquire from forecasting earnings. In particular, cash flow‐specific information is more useful in identifying accurate cash flow forecasters than earnings‐specific information.Copyright © 2011 John Wiley & Sons, Ltd.     

US Inflation Expectations and Heterogeneous Loss Functions, 1968–2010

Recent literature has suggested that macroeconomic forecasters may have asymmetric loss functions, and that there may be heterogeneity across forecasters in the degree to which they weigh under‐ and over‐predictions. Using an individual‐level analysis that exploits the Survey of Professional Forecasters respondents’ histogram forecasts, we find little evidence of asymmetric loss for the inflation forecasters. Copyright © 2013 John Wiley & Sons, Ltd.     

Testing homogeneity of Japanese CPI forecasters

This paper investigates whether some forecasters consistently outperform others using Japanese CPI forecast data of 42 forecasters over the past 18 quarters. It finds that the accuracy rankings of 0, 1, 2, and 5‐month forecasts are significantly different from those that might be expected when all forecasters had equal forecasting ability. Moreover, their rankings of the relative forecast levels are also significantly different from a random one. Copyright © 2009 John Wiley & Sons, Ltd.     

Experiments with interactional expertise

‘Interactional expertise’ is developed through linguistic interaction without full scale practical immersion in a culture. Interactional expertise is the medium of communication in peer review in science, in review committees, and in interdisciplinary projects. It is also the medium of specialist journalists and of interpretative methods in the social sciences. We describe imitation game experiments designed to make concrete the idea of interactional expertise. The experiments show that the linguistic performance of those well socialized in the language of a specialist group is indistinguishable from those with full blown practical socialization but distinguishable from those who are not well socialized. The imitation game can also be used to indicate whether an individual can enter an esoteric domain and master the interactional expertise, a skill required by interpretative sociologists of science, anthropologists, ethnographers, and the like.     

Response to one point in Gingras’s review of Gravity’s shadow

Yves Gingras says of my book Gravity’s shadow that it is too long, the style is poor, and in its 870 pages there is nothing new that is not to be regretted. Gingras’s purity of vision would be a cause for congratulation were it not for the appalling implications of one of his claims. For the sake of the future of social science—indeed for the sake of the future of civilisation—it is impossible to leave unchallenged the idea that respondents, who don’t like to see their use of data questioned, are to be commended when they withhold those data from public scrutiny.     

Interactional expertise and embodiment

In this four part exchange, Evan Selinger starts by stating that Collins’s empirical evidence in respect of linguistic socialization and its bearing on artificial intelligence and expertise is valuable; it advances philosophical and sociological understanding of the relationship between knowledge and language. Nevertheless, he argues that Collins mischaracterizes the data under review and thereby misrepresents how knowledge is acquired and understates the extent to which expert knowers are embodied. Selinger reconstructs the case for the importance of the body in the initial acquisition of language and challenges Collins to show how a disembodied entity could become fluent in any language at all.Collins responds by accepting that his approach does not demonstrate quite as much about the irrelevance of the body as he thought it did but that even though he accepts all of Selinger’s claims, ‘the body’ as needed by the philosophical approach set out by Selinger is still a vestigial thing. Collins’s main point, however, is that the philosophical view of the body—the world is divided into embodied agents and unembodied entities—distracts attention from the more interesting empirically researchable question of how the ability to become socialized diminishes, if it does, as the body become more and more minimal. The right research question is not about whether a person can extrapolate from minimal sensory input but how much extrapolation is possible under different circumstances and how it is done.Dreyfus, having seen the whole of the exchange so far, agrees that both have a point but argues that Collins’s approach still misses the well established importance of bodily engagement for full understanding.Collins responds to this by trying to set out more clearly the position associated with the idea of interactional expertise.     

Portfolio managers' and novices' forecasts of risk and return: are there predictable forecast errors?

This study aims to investigate the individual behaviour that underlies the overreaction hypothesis by conducting a controlled experiment. Two areas that were not captured by previous research on the validity of the overreaction hypothesis are investigated. First, actual portfolio managers are employed as forecasters. Second a real‐world assessment task is given in the form of predicting the prices of stocks traded on the exchange on a real time basis. The purpose is to explore return expectations and risk perceptions of portfolio managers as well as financially unsophisticated investors by using point and interval forecasts provided for different forecast horizons in bull and bear markets. Contributions stem from three sources. (1) The use of financially sophisticated subjects for the first time in an experimental framework testing the overreaction hypothesis makes possible to control for the effect of expertise. (2) The use of different forecast horizons controls for the effect of forecast period. (3) The use of real‐time forecasts of specific stocks traded at the stock exchange, for the first time in an experimental framework testing the overreaction hypothesis enables to control for ecological validity. Discussions will be given as to the portfolio managers' versus naive investors' interpolating asset prices from past trends and hedging behaviour, due to their caution in projections of ranges for future prices. Copyright © 2002 John Wiley & Sons, Ltd.     

Hidden depths: Halley, hell and other people

During the long eighteenth century, boundaries between theology and natural philosophy, between imaginary and factual travel narratives, between fiction and social commentary, were far more fluid than they are today. To explore these relationships, this paper links Mary Shelley’s Frankenstein—a book often hailed as the first science fiction novel—to two earlier works which are now less well known: Edmond Halley’s article about terrestrial magnetism, in which he suggested that God had created inhabited illuminated cavities inside the earth; and a satirical fantasy voyage written by the Danish author Ludvig Holberg, but published anonymously as Niels Klim’s journey to the underground and immediately translated into many languages. Attention is focussed on how the ambiguous presentation of these and other texts blurs any straightforward classification of genres. The aim of examining these writers together is not to search for direct mappings from one project to another, but instead to introduce Holberg’s unfamiliar yet important book and also to cast new light on Frankenstein, one of England’s most famous works of literature.     

Professional economic forecasts: Are they worth their costs?

Most economic forecast evaluations dating back 20 years show that professional forecasters add little to the forecasts generated by the simplest of models. Using various types of forecast error criteria, these evaluations usually conclude that the professional forecasts are little better than the no-change or ARIM A type forecast. It is our contention that this conclusion is mistaken because the conventional error criteria may not capture why forecasts are ma& or how they are used. Using forecast directional accuracy, the criterion which has been found to be highly correlated with profits in an interest rate setting, we find that professional GNP forecasts dominate the cheaper alternatives. Moreover, there appears to be no systematic relationship between this preferred criterion and the error measures used in previous studies.     

‘Physics and fashion’: John Tyndall and his audiences in mid-Victorian Britain

This paper explores how the physicist John Tyndall transformed himself from humble surveyor and schoolmaster into an internationally applauded icon of science. Beginning with his appointment as Professor of Natural Philosophy at the Royal Institution in 1853, I show how Tyndall’s worries about his social class and Irish origins, his painstaking attention to his lecturing performance and skilled use of the material and architectural resources of the Royal Institution were vital to his eventual success as a popular expositor and ambassador for science. Secondly I explore the implications of Tyndall’s ‘popularity’ with respect to debates over the meaning and value of scientific ‘popularisation’. In support of recent work challenging diffusionist models of science communication, I show how Tyndall’s interactions with his audiences illustrate the symbiotic relationship between producer and consumer of ‘popular’ science. By examining the views of Tyndall’s critics—notably the ‘North British’ group of physicists—and his defenders and rivals in the domain of popular scientific lecturing, I show that disputes over Tyndall’s authority reflected anxieties about what constituted popular science and the transient boundaries between instruction and entertainment. The term ‘popularisation’ enjoyed many different uses in these debates, not least of all as a rheorical device with which to either exalt or destroy a scientist’s credibility.     

Trading zones and interactional expertise

The phrase ‘trading zone’ is often used to denote any kind of interdisciplinary partnership in which two or more perspectives are combined and a new, shared language develops. In this paper we distinguish between different types of trading zone by asking whether the collaboration is co-operative or coerced and whether the end-state is a heterogeneous or homogeneous culture. In so doing, we find that the voluntary development of a new language community—what we call an inter-language trading zone—represents only one of four possible configurations. In developing this argument we show how different modes of collaboration result in different kinds of trading zone, how different kinds of trading zone may be ‘nested’ inside each other and discuss how a single collaboration might move between different kinds of trading zone over time. One implication of our analysis is that interactional expertise is a central component of at least one class of trading zone.     

Instruments and rules: R. B. Woodward and the tools of twentieth-century organic chemistry

The paper illustrates how organic chemists dramatically altered their practices in the middle part of the twentieth century through the adoption of analytical instrumentation — such as ultraviolet and infrared absorption spectroscopy and nuclear magnetic resonance spectroscopy — through which the difficult process of structure determination for small molecules became routine. Changes in practice were manifested in two ways: in the use of these instruments in the development of ‘rule-based’ theories; and in an increased focus on synthesis, at the expense of chemical analysis. These rule-based theories took the form of generalizations relating structure to chemical and physical properties, as measured by instrumentation. This ‘Instrumental Revolution’ in organic chemistry was two-fold: encompassing an embrace of new tools that provided unprecedented access to structures, and a new way of thinking about molecules and their reactivity in terms of shape and structure. These practices suggest the possibility of a change in the ontological status of chemical structures, brought about by the regular use of instruments. The career of Robert Burns Woodward (1917–1979) provides the central historical examples for the paper. Woodward was an organic chemist at Harvard from 1937 until the time of his death. In 1965, he won the Nobel Prize in Chemistry.