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

Author

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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.

Suggested Citation

  • Puah, Chin-Hong & Chong, Lucy Lee-Yun & Jais, Mohamad, 2011. "Testing the Rational Expectations Hypothesis on the Retail Trade Sector Using Survey Data from Malaysia," MPRA Paper 36699, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:36699
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    References listed on IDEAS

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    1. Pesaran, M. Hashem & Weale, Martin, 2006. "Survey Expectations," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 1, chapter 14, pages 715-776, Elsevier.
    2. Frederic S. Mishkin, 1983. "A Rational Expectations Approach to Macroeconometrics: Testing Policy Ineffectiveness and Efficient-Markets Models," NBER Books, National Bureau of Economic Research, Inc, number mish83-1, March.
    3. 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.
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    6. 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.
    7. Dovern, Jonas & Weisser, Johannes, 2008. "Are they really rational? Assessing professional macro-economic forecasts from the G7-countries," Kiel Working Papers 1447, Kiel Institute for the World Economy (IfW Kiel).
    8. Schmeling, Maik & Schrimpf, Andreas, 2011. "Expected inflation, expected stock returns, and money illusion: What can we learn from survey expectations?," European Economic Review, Elsevier, vol. 55(5), pages 702-719, June.
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    10. Baillie, Richard T & Lippens, Robert E & McMahon, Patrick C, 1983. "Testing Rational Expectations and Efficiency in the Foreign Exchange Market," Econometrica, Econometric Society, vol. 51(3), pages 553-563, May.
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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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    More about this item

    Keywords

    REH; Unbiasedness; Non-serial Correlation; Weak-form Efficiency;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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