Expectations of Professionals in the Turkish Stock Market: A Study of a Monthly Reuters Survey

Abstract

Reuters-Turkey News Service conducted a monthly survey of forecasts of the senior analysts, portfolio managers, or strategists of the major brokerage houses in the Istanbul Stock Exchange on the next month’s closing level of the ISE-100 index. The survey data are analyzed in this study, in order to assess the forecasting performance of market professionals, to test previously documented behavioral biases of analyst expectations and some specific hypotheses of the noisy rational expectations literature. The results suggest that: i) survey participants’ forecasts have no significant predictive power, ii) they exhibit optimism bias, iii) they tend to extrapolate from the past despite the fact that the degree of extrapolation is negatively correlated with forecast performance, iv) extrapolation is insignificant when the previous period’s return is negative, v) there is little evidence of persistence in the forecasting performance over time, and vi) participants seem to place greater weight on market price than on their priors.