Thursday, December 4, 2008

League table update - a miss is as good as a mile

...or maybe not.  The September update of the tipsters league table showed ANZ leading the pack, with the narrowest of leads over my team.  The size of the rate cuts since that time (1% in October, 0.75% in November and another 1% in December) have sent the "root mean square error" mechanism into overdrive.  As the formula is particularly hard on forecasts that are very wide of the mark (courtesy of the squaring process)  the overall error ratings of all the tipsters has blown out.  In September ANZ led with an error rating of 0.339%.  The new leader is Westpac on 0.624%, although its worth noting that both the Average and No Change tipsters have snuck into the outright lead.

It's not hard to see why we've all gone backwards so fast, and ANZ in particular.  It was only a few months ago, in June 08, that a majority of the tipsters we track were calling for the cash rate - then at 7.25% - to be hiked.  ANZ were particularly aggressive, calling for two hikes to 7.75% by December '08.  The current rate of 4.25% leaves them a mere 3.50% adrift, with some pretty clear implications for the RMSE error calculator.


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