Market participants or the random walk – who forecasts better? Evidence from micro-level survey data

We analyse micro-level data concerning four financial variables in Sveriges Riksbank's Prospera Survey to evaluate the precision of forecasts provided by professionals active in the Swedish fixed-income market. Our results indicate that for the SEK/EUR and SEK/USD exchange rates, and the five-year government bond yield, none of the market participants that frequently participate in the survey manage to significantly outperform the random-walk forecast. For the central bank's policy rate, the market participants typically have a statistically significant higher forecast precision than the random-walk forecast at the three-month horizon; however, at the two- and five-year horizons, the random-walk forecast typically outperforms the market participants.