Document Type
Article
Publication Date
7-6-2017
Abstract
We test if analysts display multiple biases in forecasting the Institute for Supply Management’s (ISM) manufacturing Purchasing Manager’s Index (PMI). We adopt a test that does not require knowledge of the forecaster’s prior information set and is robust to rational clustering, correlated forecast errors and outliers. We find that analysts forecast the PMI poorly and display multiple biases when forecasting. In particular, forecasters anti-herd and anti-anchor. Anti-herding supports a reputation-based notion that forecasters are rewarded not only for forecast accuracy but also for being the best forecast at a single point in time. Anti-anchoring is consistent with forecasters overreacting to private information. The two biases show a strong positive correlation suggesting that the incentives that elicit anti-herding also elicit anti-anchoring behavior. Both biases result in larger absolute errors, although the effect is stronger for anti-herding.
Recommended Citation
Broughton, J. B., & Lobo, B. J. (2017). Herding and anchoring in macroeconomic forecasts: the case of the PMI. Empirical Economics, 55(3), 1337-1355. doi: 10.1007/s00181-017-1306-6
Peer Reviewed
1
Copyright
Springer
Included in
Business Administration, Management, and Operations Commons, Business Analytics Commons, Management Information Systems Commons, Management Sciences and Quantitative Methods Commons, Organizational Behavior and Theory Commons, Other Business Commons, Sales and Merchandising Commons
Comments
This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Empirical Economics, volume 55, issue 3, in 2017 following peer review. The final publication is available at Springer via DOI: 10.1007/s00181-017-1306-6.