Evaluating predictive performance of judgemental extrapolations from simulated currency series

Andrew C. Pollock*, Alex MacAulay, Dilek Önkal-Atay, Mary E. Wilkie-Thomson

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)


Judgemental forecasting of exchange rates is critical for financial decision-making. Detailed investigations of the potential effects of time-series characteristics on judgemental currency forecasts demand the use of simulated series where the form of the signal and probability distribution of noise are known. The accuracy measures Mean Absolute Error (MAE) and Mean Squared Error (MSE) are frequently applied quantities in assessing judgemental predictive performance on actual exchange rate data. This paper illustrates that, in applying these measures to simulated series with Normally distributed noise, it may be desirable to use their expected values after standardising the noise variance. A method of calculating the expected values for the MAE and MSE is set out, and an application to financial experts' judgemental currency forecasts is presented.

Original languageEnglish
Pages (from-to)281-293
Number of pages13
JournalEuropean Journal of Operational Research
Issue number2
Publication statusPublished - 16 Apr 1999
Externally publishedYes


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