Correcting the January Optimism Effect
Journal of Forecasting , Volume 39 p. 927- 933
Each month, various professional forecasters give forecasts for next year's real gross domestic product (GDP) growth and unemployment. January is a special month, when the forecast horizon moves to the following calendar year. Instead of deleting the January data when analyzing forecast updates, I propose a periodic version of a test regression for weak-form efficiency. An application of this periodic model for many forecasts across a range of countries shows that in January GDP forecast updates are positive, whereas the forecast updates for unemployment are negative. I document that this January optimism about the new calendar year is detrimental to forecast accuracy. To empirically analyze Okun's law, I also propose a periodic test regression, and its application provides more support for this law.
|Keywords||forecast updates, January effect, Okun's law, periodic regression model, weak-form efficiency|
|Journal||Journal of Forecasting|
|Organisation||Department of Econometrics|
Franses, Ph.H.B.F. (2020). Correcting the January Optimism Effect. Journal of Forecasting, 39, 927–933. Retrieved from http://hdl.handle.net/1765/129435