George Bonne, director of quantitative research, Thomson Reuters
"Plenty of jokes have been made about the accuracy of economists and their models, but we have clearly demonstrated that just as with sell-side analysts, some economists are more accurate than others and that accuracy is persistent."
Thomson Reuters StarMine has applied its SmartEstimates methodology to economic data and FX rates to help professional investment managers generate investment ideas and mitigate risks. StarMine SmartEconomics aims to provide guidance on what surprises may lay ahead in important economic releases and FX rates.
Combining Thomson Reuters Datastream economic data with Reuters polling data, StarMine SmartEconomics assesses the historical accuracy of each forecast contributor at every point in time on every poll in which the contributor had a forecast. These historical accuracy scores determine the weight that each forecaster receives in the SmartEstimate. Backtests show that the SmartEstimate for economics and FX correctly predicts the direction of macro surprises relative to the consensus forecast over 60% of the time when the SmartEstimate is significantly different from the consensus. For performance over the past year, the success rate reached 75% or more on some of the most significant indicators such as US non-farm payrolls.
"Across nearly 20 years of historical data, StarMine has shown that economic and FX forecasting ability is a persistent skill. Forecasters who are in the top quintile of accuracy one year are five times as likely to remain in the top quintile the following year as they are to fall to the least accurate quintile," said Dr. George Bonne, director of quantitative research at Thomson Reuters. "Plenty of jokes have been made about the accuracy of economists and their models, but we have clearly demonstrated that just as with sell-side analysts, some economists are more accurate than others and that accuracy is persistent."
StarMine creates SmartEstimates for approximately 30 FX rates and 700 global economic indicators spanning 50 countries, covering all the major market indicators such as non-farm payrolls, GDP, inflation, retail sales and many more. For economic indicators, the SmartEstimate is released each time a new poll is conducted, which is typically several days to a week before an expected economic release. SmartEstimates for FX rates are generated at the start of each month, forecasting the FX rate one, three, six, and twelve months out.
"No one disputes that economic surprises move markets. Now, for the first time, investors can get a view on what those surprises are likely to be, position themselves accordingly and thereby tap into an additional source of alpha," continued Dr. Bonne.
StarMine SmartEconomics is StarMine's first model targeting macroeconomics and FX rates, with more macroeconomic models to come. It is provided as a daily data feed from Thomson Reuters, and through Thomson Reuters Eikon desktop platform.