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

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  • Puah, Chin-Hong
  • Chong, Lucy Lee-Yun
  • Jais, Mohamad

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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36699.

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Date of creation: Oct 2011
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Publication status: Published in Journal of International Business and Economics 4.11(2011): pp. 214-218
Handle: RePEc:pra:mprapa:36699

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Keywords: REH; Unbiasedness; Non-serial Correlation; Weak-form Efficiency;

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References

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  1. Maik Schmeling & Andreas Schrimpf, 2008. "Expected Inflation, Expected Stock Returns, and Money Illusion: What can we learn from Survey Expectations?," SFB 649 Discussion Papers SFB649DP2008-036, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  3. Pesaran, M. Hashem & Weale, Martin, 2006. "Survey Expectations," Handbook of Economic Forecasting, Elsevier.
  4. Jonas Dovern & Johannes Weisser, 2008. "Are They Really Rational? Assessing Professional Macro-Economic Forecasts from the G7-Countries," Kiel Working Papers 1447, Kiel Institute for the World Economy.
  5. Henzel, Steffen & Wollmershäuser, Timo, 2008. "The New Keynesian Phillips curve and the role of expectations: Evidence from the CESifo World Economic Survey," Economic Modelling, Elsevier, vol. 25(5), pages 811-832, September.
  6. Evans, George & Gulamani, Riyaz, 1984. "Tests for Rationality of the Carlson-Parkin Inflation Expectations Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 46(1), pages 1-19, February.
  7. E. Douglas Beach & Jorge Fernandez-Cornej & Noel D. Uri, 1995. "Testing the rational expectations hypothesis using survey data from vegetable growers in the USA," Journal of Economic Studies, Emerald Group Publishing, vol. 22(6), pages 46-59, October.
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Cited by:
  1. 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.
  2. 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.
  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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