Study: Forecasters Are Bad At Forecasting
WASHINGTON (CBS DC) - Economy analysts think they have it right, when often times they are wrong.
According to The Washington Post, a new study by the research team at Goldman Sachs found “that the forecasts tend to underestimate the outcome for several months in a row, and then overestimate it for several months in a row.”
This means that overly optimistic forecasts one month most likely lead to the same optimism the next month. Forecasters don’t usually adjust their forecasts based on their previous outcome.
In the article by The Washington Post, Goldman Sachs analyzed the “magnitude and direction of ‘surprise’ in every release of data,” showing “the difference between the consensus expectation of economists polled by Bloomberg and where the indicator actually fell.
In recent years, analysts have had a difficult time adjusting to the problems in the economy making accurate forecasting difficult.
Accurate forecasting is important because the difference between whether an indicator exceeds or disappoints analysts’ expectations is how the market reacts.