Munich Personal RePEc Archive

Theory of rational expectations hypothesis: banks and other financial institutions in Malaysia

Chong, Lucy Lee-Yun and Puah, Chin-Hong and Md Isa, Abu Hassan (2012): Theory of rational expectations hypothesis: banks and other financial institutions in Malaysia.

[img]
Preview
PDF
MPRA_paper_36657.pdf

Download (88kB) | Preview

Abstract

The Rational Expectations Hypothesis (REH) states that the actual outcome will be identical to the optimal forecast when all obtainable information had been utilized in forming the expectations. This study intends to empirically examine the existence of rational behavior in the banks and other financial institutions in Malaysia from the perspective of how the decision-makers formed their gross revenue (GR) and capital expenditure (CE) forecasts. Survey data provided by the Business Expectations Survey of Limited Companies was utilized to conduct a series of rationality tests including unbiasedness, non-serially correlated and efficiency tests. Empirical evidence shows that GR is unbiased, serially uncorrelated and efficient, nevertheless, CE fails to pass any of the tests. Therefore, GR is deemed as a rational predictor to the actual value but not in the case of CE.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.