Forecasting the Brazilian real and the Mexican peso: Asymmetric loss, forecast rationality, and forecaster herding

Using forecasts of exchange rates of the Brazilian real and the Mexican peso against the US dollar, we analyze the symmetry of the loss function of exchange-rate forecasters and the rationality of their forecasts. Symmetry of the loss function can be rejected for some forecasters but not all. Even when allowing for asymmetric loss functions, the predictions of some forecasters do not fit the traditional definition of rational forecasts. We interpret our results in terms of recent research on forecaster (anti-)herding.