Aretz, Kevin and Peel, David (2013) An example of an optimal forecast exhibiting decreasing bias with increasing forecast horizon. Bulletin of Economic Research, 65 (4). pp. 362-371. ISSN 0307-3378Full text not available from this repository.
Motivated by a central banker with an inflation target, we show that the optimal forecast bias under non-quadratic loss functions and non-normal forecast errors can decrease or initially increase and then decrease with the forecast horizon. We initially proof that, if the variable to forecast can be described by a generalized Rayleigh distribution, its conditional mean does in general not constitute the optimal prediction under a symmetric target zone loss function. Subsequently, we approximate the target zone loss function to show the potential for variation in optimal bias over the forecast horizon.
|Journal or Publication Title:||Bulletin of Economic Research|
|Uncontrolled Keywords:||efficient markets ; forecast evaluation ; loss function ; rationality|
|Departments:||Lancaster University Management School > Accounting & Finance|
Lancaster University Management School > Economics
|Deposited On:||11 Jul 2011 19:36|
|Last Modified:||10 Apr 2016 01:16|
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