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

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  • Wong, Shirly Siew-Ling
  • Puah, Chin-Hong
  • Shazali, Abu Mansor

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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36661.

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Date of creation: Dec 2011
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Publication status: Published in Economic Computation and Economic Cybernetics Studies and Research 4.45(2011): pp. 169-180
Handle: RePEc:pra:mprapa:36661

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Keywords: Rational Expectations Hypothesis; Unbiasedness Test; Non-serial Correlation Test; Weak-form Efficiency Test;

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Cited by:
  1. Chong, Lucy Lee-Yun & Puah, Chin-Hong & Md Isa, Abu Hassan, 2012. "Theory of rational expectations hypothesis: banks and other financial institutions in Malaysia," MPRA Paper 36657, University Library of Munich, Germany.
  2. Puah, Chin-Hong & Wong, Shirly Siew-Ling & Habibullah, Muzafar Shah, 2012. "Rationality of business operational forecasts: evidence from Malaysian distributive trade sector," MPRA Paper 37599, University Library of Munich, Germany.
  3. Chin-Hong Puah & Shirly Siew-Ling Wong & Venus Khim-Sen Liew, 2013. "Testing rational expectations hypothesis in the manufacturing sector in Malaysia," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(2), pages 303-316, April.

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