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Wednesday, August 4 • 1:00pm - 2:30pm
7E2 Extreme price changes and individual forecasting behavior

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Tim Jaeger, Universtaet Hamburg; Lisa Posey, Pennsylvania State University; Petra Steinorth, University of Hamburg

We conduct an experiment in which individuals forecast an autoregressive time series that occasionally includes extreme price changes. Overall, we find that extreme price changes decrease forecasting accuracy. Depending on the process, we see an increase of absolute forecasting errors up to 30%. Adding occasional extreme price changes specifically biases estimates upwards, i.e. subjects systematically overestimate outcomes. In addition, we observe that large price changes increase extrapolative biases, i.e. individuals overweight the deviation of current round's realization from last round's rational expectation.

Discussant
PW

Po-Lin Wang

University of South Florida

Presenters
TJ

Tim Jaeger

Universitaet Hamburg
PS

Petra Steinorth

University of Hamburg
LP

Lisa Posey

Penn State University



Wednesday August 4, 2021 1:00pm - 2:30pm EDT