Survey Evidence on the Rationality of Business Expectations: Implications from the Malaysian Agricultural Sector

Shirly Wong (), Chin-Hong Puah and Abu Mansor Shazali

MPRA Paper from University Library of Munich, Germany

Abstract: The rational expectations hypothesis (REH) serves as an appealing mechanism in forming expectations compared to that of extrapolative or adaptive frameworks because of its consistency with the basic principles of maximizing behavior. This argument is particularly true as the basic idea of REH maintains that expectations in an uncertain world are formed under assumptions where no systematic errors and information are fully utilized. However, empirical findings from the present study showed diverse evidence of rationality in business operational forecasts formed by Malaysian agriculture firms, as capital expenditure expectations were found to be irrational but gross revenue expectations were supportive of the REH proposition. This implies that the survey of business forecasts may not work well in reflecting the true business outlook, specifically in value-related operational forecasts, which in turn would directly influence investment decisions as well as the capital budgeting process.

Keywords: Rational Expectations Hypothesis; Unbiasedness Test; Non-serial Correlation Test; Weak-form Efficiency Test (search for similar items in EconPapers)
JEL-codes: C12 C22 C83 D84 Q10 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-sea
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Citations: View citations in EconPapers (3)

Published in Economic Computation and Economic Cybernetics Studies and Research 4.45(2011): pp. 169-180

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