Why stock market predictions are so often misses the

Why stock market predictions are so often misses the?
What was the oracle in ancient times , which is now the expert. To find out what happens to the economy or the stock exchanges, we rely on the knowledge of modern prophets : On Financial Market researchers , analysts and fund managers – even on those who earn their money by watching the markets.

Success makes arrogant
But how accurate are the stock market predictions of the experts? Three researchers from Germany and wanted to know Canada and compared with the old estimates of future actual values.

Cause of their study are insights from psychology : " Most people are often over- confident and to the precision of their knowledge , "write Richard Deaves ( McMaster University, Ontario ), Erik Lueders and Michael Schröder (both: ZEW Mannheim) in their study, the forthcoming in the Journal of Economic Behavior & Organization "appears. But the same goes for professional financial prophet? This question has been no research team investigated.

For its test of reality , the three scientists used the forecasts on the future development of the German stock index ( DAX ), which are requested in the same questionnaire. The expert estimates of future economic development proved to be asked for the study as too crude – the ZEW only be a basic assessment of the development: Is it up , down, or is all the same?

The DAX forecasts on the other hand much more concrete : So the experts have to specify a precise margin, are the likely the stock after half a year in their opinion is .

Hardly a respondent is the test oracle
The interesting thing : The width of the margin to select the respondents themselves . An interval of 1000 Dax – points is just as possible as one of ten. Who was more uncertain , then, how many points are in the index six months later, would , could simply indicate a greater margin – and thus in the end maybe even be right .

Nevertheless, a respondent could barely pass the test oracle : The vast majority of Dax true value was at most only seven out of ten estimates the assumed interval. 40 percent met even only a maximum of every second time the mark.

In a second study the researchers were able to demonstrate to the financial experts a typical human trait : to make success self-confidence , caution against failures . they were correct with their predictions in the previous time, then reduced the respondents the margin at the next attempt at about five percent.

they were wrong, they increased the interval by a similar amount – probably to the danger of a renewed insult reduced. The crucial question, the researchers went about was: experts with long experience better? "If they are able to learn from their successes and failures , they would have the time to make really accurate forecasts " , the researchers suspect .

But curiously, their analysis showed just the opposite : three additional years of professional experience, the forecasts deteriorate measured by an average of over one percent , noted the authors. Perhaps the motivation is to deliver good performance, with experienced veterans simply are not as big as the presumption of Deaves , Luders , and Schroder.

Experience therefore not protected against errors , but makes it more likely. Conversely, this means that true professionals do not have to be old.

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