Rational versus Adaptive Expectations in Present Value Models
AbstractUsing data on stock price and dividends, and on long-term and short-term interest rates, the authors test an important implication of present value models--that current value is a linear function of the conditional expectations of the next-period value and the current determining variable . This implication, combined with rational expectations, is strongly rejected. Combined with adaptive expectations, it is accepted. The latter model can also explain the observed negative relation between the rate of return and stock price. Thus the rational expectations assumption should be used with caution; the adaptive expectations assumption may be useful in econometric practice. Copyright 1989 by MIT Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by MIT Press in its journal Review of Economics & Statistics.
Volume (Year): 71 (1989)
Issue (Month): 3 (August)
Contact details of provider:
Web page: http://mitpress.mit.edu/journals/
Other versions of this item:
- Chow, G.C., 1988. "Rational Versus Adaptive Expectations In Present Value Models," Papers 328, Princeton, Department of Economics - Econometric Research Program.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karie Kirkpatrick).
If references are entirely missing, you can add them using this form.