IDEAS home Printed from https://ideas.repec.org/a/taf/apeclt/v17y2010i18p1835-1839.html
   My bibliography  Save this article

A test of the present value model of stock prices under rational and adaptive expectations using Bursa Malaysia data from 1983 to 2003

Author

Listed:
  • Nicky Yeong
  • Chong Mun Ho
  • Brian Dollery
  • Mori Kogid

Abstract

The rational expectations model has been the central expectations hypothesis used by economists while the adaptive expectations hypothesis has been considered by many as inefficient because expectations cannot fully exploit all available information. The aim of this study is to determine which of these two expectations formation hypotheses best explains the behaviour of investors in the Malaysian stock market. We employ the Chow (1988) methodology in which the two expectations hypotheses are applied to the present value model of stock prices for Malaysian stock market data consisting of stock prices and dividends for 13 companies over 21 years. Our results provide strong statistical support for the adaptive expectations hypothesis. This finding is in line with the empirical findings of Chow and his collaborators.

Suggested Citation

  • Nicky Yeong & Chong Mun Ho & Brian Dollery & Mori Kogid, 2010. "A test of the present value model of stock prices under rational and adaptive expectations using Bursa Malaysia data from 1983 to 2003," Applied Economics Letters, Taylor & Francis Journals, vol. 17(18), pages 1835-1839.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:18:p:1835-1839
    DOI: 10.1080/13504850903317354
    as

    Download full text from publisher

    File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/13504850903317354&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/13504850903317354?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. West, Kenneth D, 1988. "Dividend Innovations and Stock Price Volatility," Econometrica, Econometric Society, vol. 56(1), pages 37-61, January.
    2. Chow, Gregory C. & Fan, Zhao-zhi & Hu, Jin-yan, 1999. "Shanghai Stock Prices as Determined by the Present-Value Model," Journal of Comparative Economics, Elsevier, vol. 27(3), pages 553-561, September.
    3. Foroni, Ilaria & Gardini, Laura & Rosser, J.Barkley, 2003. "Adaptive and statistical expectations in a renewable resource market," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 63(6), pages 541-567.
    4. Kivilcim Metin & Ilker Muslu, 1999. "Money demand, the Cagan model, testing rational expectations vs adaptive expectations: The case of Turkey," Empirical Economics, Springer, vol. 24(3), pages 415-426.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jasman Tuyon & Zamri Ahmada, 2016. "Behavioural finance perspectives on Malaysian stock market efficiency," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 16(1), pages 43-61, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohamed KHALED, 2018. "apport du biais d’excès de confiance à l’explication de la volatilité des rendements du marché des actions algérien," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 9(2), pages 36-46, December.
    2. Gregory C. Chow & Caroline C. Lawler, 2003. "A Time Series Analysis of the Shanghai and New York Stock Price Indices," Annals of Economics and Finance, Society for AEF, vol. 4(1), pages 17-35, May.
    3. Hugo Benítez-Silva & Debra Dwyer & Wayne-Roy Gayle & Thomas Muench, 2008. "Expectations in micro data: rationality revisited," Empirical Economics, Springer, vol. 34(2), pages 381-416, March.
    4. Ahmad Fraz & Arshad Hassan, 2017. "Stock Price Synchronicity and Information Environment," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(4), pages 213-232, December.
    5. Lüders, Erik & Lüders-Amann, Inge & Schröder, Michael, 2004. "The Power Law and Dividend Yields," ZEW Discussion Papers 04-51, ZEW - Leibniz Centre for European Economic Research.
    6. Peng, Lin & Xiong, Wei, 2006. "Investor attention, overconfidence and category learning," Journal of Financial Economics, Elsevier, vol. 80(3), pages 563-602, June.
    7. Eugene N. White, 2004. "Bubbles and Busts: The 1990s in the Mirror of the 1920s," FRU Working Papers 2004/09, University of Copenhagen. Department of Economics. Finance Research Unit.
    8. Patrick J. Kelly, 2014. "Information Efficiency and Firm-Specific Return Variation," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 4(04), pages 1-44.
    9. Hasan, Iftekhar & Song, Liang & Wachtel, Paul, 2013. "Institutional development and stock price synchronicity: Evidence from China," BOFIT Discussion Papers 20/2013, Bank of Finland Institute for Emerging Economies (BOFIT).
    10. Wei Long & Dingding Li & Qi Li, 2016. "Testing explosive behavior in the gold market," Empirical Economics, Springer, vol. 51(3), pages 1151-1164, November.
    11. Bryan Kelly & Alexander Ljungqvist, 2012. "Testing Asymmetric-Information Asset Pricing Models," The Review of Financial Studies, Society for Financial Studies, vol. 25(5), pages 1366-1413.
    12. Nathan S. Balke & Mark E. Wohar, 2006. "What Drives Stock Prices? Identifying the Determinants of Stock Price Movements," Southern Economic Journal, John Wiley & Sons, vol. 73(1), pages 55-78, July.
    13. Robert J. Shiller, 2003. "From Efficient Markets Theory to Behavioral Finance," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 83-104, Winter.
    14. Michael Scholz & Jens Perch Nielsen & Stefan Sperlich, 2012. "Nonparametric prediction of stock returns guided by prior knowledge," Graz Economics Papers 2012-02, University of Graz, Department of Economics.
    15. Jian Wang, 2005. "Can Long Horizon Data Beat Random Walk Under Engel-West Explanation?," International Finance 0501002, University Library of Munich, Germany.
    16. Chung, Heetaik & Lee, Bong-Soo, 1998. "Fundamental and nonfundamental components in stock prices of Pacific-Rim countries," Pacific-Basin Finance Journal, Elsevier, vol. 6(3-4), pages 321-346, August.
    17. Peter C. B. Phillips & Shuping Shi & Jun Yu, 2015. "Testing For Multiple Bubbles: Historical Episodes Of Exuberance And Collapse In The S&P 500," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(4), pages 1043-1078, November.
    18. Shu-Ling Lin & Jun Lu, 2019. "Institutional Investors and Corporate Performance: Insights from China," Sustainability, MDPI, vol. 11(21), pages 1-26, October.
    19. Chan, Kalok & Chan, Yue-Cheong, 2014. "Price informativeness and stock return synchronicity: Evidence from the pricing of seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 114(1), pages 36-53.
    20. Randall Morck & Bernard Yeung & Wayne Yu, 2013. "R-squared and the Economy," NBER Working Papers 19017, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apeclt:v:17:y:2010:i:18:p:1835-1839. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEL20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.