Testing the Rational Expectations Hypothesis on the Retail Trade Sector Using Survey Data from Malaysia

Puah, Chin-Hong and Chong, Lucy Lee-Yun and Jais, Mohamad (2011): Testing the Rational Expectations Hypothesis on the Retail Trade Sector Using Survey Data from Malaysia. Published in: Journal of International Business and Economics , Vol. 11, No. 4 (October 2011): pp. 214-218.

Abstract

The rational expectations hypothesis states that when people are expecting things to happen, using the available information, the predicted outcomes usually occur. This study utilized survey data provided by the Business Expectations Survey of Limited Companies to test whether forecasts of the Malaysian retail sector, based on gross revenue and capital expenditures, are rational. The empirical evidence illustrates that the decision-makers expectations in the retail sector are biased and too optimistic in forecasting gross revenue and capital expenditures.

• Item Type: MPRA Paper
• Language: English
• Keywords: REH, Unbiasedness, Non-serial Correlation, Weak-form Efficiency
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations; L - Industrial Organization > L8 - Industry Studies: Services > L81 - Retail and Wholesale Trade ; e-Commerce; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes

References

Baillie, R.T., Lippens, R.E. and McMahon, P.C. (1983). Testing Rational Expectations and Efficiency in the Foreign Exchange Market. Econometrica, 51(3), 553-563.

Beach, E.D., Fernandez-Cornejo, J. and Uri, N.D. (1995). Testing the Rational Expectations Hypothesis Using Survey Data from Vegetable Growers in the USA. Journal of Economic Studies, 22(6), 46-59.

Department of Statistics Malaysia. Business Expectations Survey of Limited Companies, various issues. Putrajaya: Department of Statistics Malaysia.

Dovern, J. and Weisser, J. (2008). Are They Really Rational? Assessing Professional Macro-Economic Forecasts from the G7-Countries. Kiel Institute for the World Economy, Working Papers, No. 1447.

Evans, G.W. and Gulamani, R. (1984). Tests for Rationality of the Carlson-Parkin Inflation Expectations Data. Oxford Bulletin of Economics and Statistics, 46(1), 1-19.

Friedman,B.M. (1980). Survey Evidence on the ‘Rationality’ of Interest Rate Expectations. Journal of Monetary Economics, 6(4), 453-465.

Granger, C.W.J. (1986). Developments in the Study of Cointegrated Economic Variables. Oxford Bulletin of Economics and Statistics, 48(3), 213-228.

Henzel, S. and Wollmershäuser, T. (2008). The New Keynesian Phillips Curve and the Role of Expectations: Evidence from the CESifo World Economic Survey. Economic Modelling, 25(5), 811-832.

Lim, Y.M., Badarulzaman, N. and Ahmad, A.G. (2003). Retail Activity in Malaysia: From Shophouse to Hypermarket. Paper presented at the Pacific Rim Real Estate Society 9th Annual Conference, Australia.

Mestre, R. (2007). Are Survey-Based Inflation Expectations in the EURO Area Informative? European Central Bank, Working Paper Series No. 721.

Mishkin, F.S. (1983). A Rational Expectations Approach to Macroeconomics: Testing Policy Ineffectiveness and Efficient-Markets Models. Chicago and London: The University of Chicago Press.

Muth, J.F. (1961). Rational Expectations and the Theory of Price Movements. Econometrica, 29(3), 315-335.

Pesaran, M.H. and Weale, M.R. (2006). Survey Expectations. In G. Elliott, C.W.J. Granger, and A. Timmermann (Eds.), Handbook of Economic Forecasting (pp.715-776). North-Holland.

Raja, M., Sudhahar, J.C. and Selvam, M. (2009). Testing the Semi-Strong Form Efficiency of Indian Stock Market with Respect to Information Content of Stock Split Announcement: A Study in IT Industry. International Research Journal of Finance and Economics, 2009(25), 7-20.

Sargent, T.J. (2008). Rational Expectations. The Concise Encyclopedia of Economics. Library of Economics and Liberty. Retrieved May 7, 2009, from http://www.econlib.org/library/Enc/RationalExpectations.html.

Schmeling, M. and Schrimpf, A. (2008). Expected Inflation, Expected Stock Returns, and Money Illusion: What Can We Learn from Survey Expectations? Deutsche Forschungsgemeinschaft, SFD 649 Discussion Paper 2008-036.

Zarnowitz, V. (1992). Business Cycles: Theory, History, Indicators, and Forecasting. Chicago and London: The University of Chicago Press.