TY - JOUR
T1 - Agreeing on disagreement
T2 - Heterogeneity or uncertainty?
AU - ter Ellen, Saskia
AU - Verschoor, Willem F.C.
AU - Zwinkels, Remco C.J.
PY - 2019/6
Y1 - 2019/6
N2 - We study whether disagreement is a useful proxy for uncertainty in the foreign exchange market using monthly forecasts for the euro, British pound, and Japanese yen against the U.S. dollar over the 2001–2017 period. We obtain measures of uncertainty and find that disagreement is not robustly related to uncertainty, as results depend heavily on the forecast horizon. In addition, we find that disagreement is positively associated with market liquidity and trading activity. This confirms that disagreement is not a proper proxy for uncertainty and suggests that it is more akin to heterogeneity.
AB - We study whether disagreement is a useful proxy for uncertainty in the foreign exchange market using monthly forecasts for the euro, British pound, and Japanese yen against the U.S. dollar over the 2001–2017 period. We obtain measures of uncertainty and find that disagreement is not robustly related to uncertainty, as results depend heavily on the forecast horizon. In addition, we find that disagreement is positively associated with market liquidity and trading activity. This confirms that disagreement is not a proper proxy for uncertainty and suggests that it is more akin to heterogeneity.
KW - Disagreement
KW - Foreign exchange markets
KW - Heterogeneity
KW - Uncertainty
UR - http://www.scopus.com/inward/record.url?scp=85062299508&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85062299508&partnerID=8YFLogxK
U2 - 10.1016/j.finmar.2019.02.002
DO - 10.1016/j.finmar.2019.02.002
M3 - Article
AN - SCOPUS:85062299508
SN - 1386-4181
VL - 44
SP - 17
EP - 30
JO - Journal of Financial Markets
JF - Journal of Financial Markets
ER -