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WHY FINANCIAL MARKETS DO NOT USE ECONOMETRIC FORECASTING: FOREIGN EXCHANGE EXOTICS, CENTRAL BANKS AND POSITION TAKING
Author(s) -
NEFTCI SALIH N.
Publication year - 2007
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2007.01035.x
Subject(s) - economics , position (finance) , econometric model , foreign exchange , financial market , econometrics , foreign exchange market , bayesian probability , financial economics , finance , monetary economics , computer science , artificial intelligence
Clients and market practitioners act based on very different sets of information. It is natural for a client to use the Wiener–Kolmogorov prediction theory. Market makers are different. They also use econometric forecasting. But these are not standard econometric forecasting techniques. The practitioner has to take into account various levels or barriers known to exist in the short run. In this paper, we argue that the presence of such levels changes the classical forecasting problem into a Bayesian one.