Trapped in the Here and Now - New Insights into Financial Market Analyst Behavior

This study deals with the phenomenon of topically oriented trend adjustment in the time series of financial market forecasts. A total of 1,182 time series with altogether 158,022 interest rate predictions are examined. Forecasts refer to three-month interest rates and ten-year government bond yields in the USA, Japan, Germany, France, the United Kingdom, Italy, Spain, Canada, the Netherlands, Switzerland, Sweden and Norway. The forecasts are generated for horizons of four and thirteen months. Topically oriented trend adjustments arise in 1,164 of the 1,182 forecast time series. Thus 98.5% of these forecast time series reflect the present rather than the future. In other words, they correlate more strongly with the time series of naïve forecasts than with actual events. Independent of the forecast object, forecast horizon and countries concerned, the overwhelming majority of the forecast time series is distinguished by topically oriented trend adjustment. Five explanation patterns for topically oriented trend adjustment are meanwhile under discussion: 1. Anchoring heuristics, 2. The tendency to underestimate the variability of reality, 3. Avoidance of major blunders through protective estimates, 4. Normative herd behavior such as externally triggered herding, and 5. Information-based herd behavior.