TY - JOUR AU - Gurkaynak,Refet AU - Wolfers,Justin TI - Macroeconomic Derivatives: An Initial Analysis of Market-Based Macro Forecasts, Uncertainty, and Risk JF - National Bureau of Economic Research Working Paper Series VL - No. 11929 PY - 2006 Y2 - January 2006 UR - http://www.nber.org/papers/w11929 L1 - http://www.nber.org/papers/w11929.pdf N1 - Author contact info: Refet Gurkaynak Bilkent University Department of Economics 06800 Ankara, Turkey E-Mail: refet@bilkent.edu.tr Justin Wolfers Business and Public Policy Department Wharton School, University of Pennsylvania 3620 Locust Walk Room 1456 Steinberg-Deitrich Hall Philadelphia, PA 19104-6372 Tel: (215) 898-3013 Fax: (215) 898-7635 E-Mail: jwolfers@wharton.upenn.edu M1 - published as Refet Gürkaynak, Justin Wolfers. "Macroeconomic Derivatives: An Initial Analysis of Market-Based Macro Forecasts, Uncertainty, and Risk," in Jeffrey Frankel and Christopher Pissarides, editors, "NBER International Seminar on Macroeconomics 2005" MIT Press (2007) AB - In September 2002, a new market in %u201CEconomic Derivatives%u201D was launched allowing traders to take positions on future values of several macroeconomic data releases. We provide an initial analysis of the prices of these options. We find that market-based measures of expectations are similar to survey-based forecasts although the market-based measures somewhat more accurately predict financial market responses to surprises in data. These markets also provide implied probabilities of the full range of specific outcomes, allowing us to measure uncertainty, assess its driving forces, and compare this measure of uncertainty with the dispersion of point-estimates among individual forecasters (a measure of disagreement). We also assess the accuracy of market-generated probability density forecasts. A consistent theme is that few of the behavioral anomalies present in surveys of professional forecasts survive in equilibrium, and that these markets are remarkably well calibrated. Finally we assess the role of risk, finding little evidence that risk-aversion drives a wedge between market prices and probabilities in this market. ER -