IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Qualitative Expectations Hypothesis: Model Ambiguity, Consistent Representations Of Market Forecasts, And Sentiment

Listed author(s):
  • Roman Frydman

    (Department of Economics, New York University.)

  • Søren Johansen

    (Department of Economics, University of Copenhagen)

  • Anders Rahbek

    (Department of Economics, University of Copenhagen)

  • Morten Nyboe

    (Department of Economics, University of Copenhagen)

We introduce the Qualitative Expectations Hypothesis (QEH) as a new approach to modeling macroeconomic and ?nancial outcomes. Building on John Muth?s seminal insight underpinning the Rational Expectations Hypothesis (REH), QEH represents the market?s forecasts to be consistent with the predictions of an economist?s model. However, by assuming that outcomes lie within stochastic intervals, QEH, unlike REH, recognizes the ambiguity faced by an economist and market participants alike. Moreover, QEH leaves the model open to ambiguity by not specifying a mechanism determining speci?c values that outcomes take within these intervals. In order to examine a QEH model?s empirical relevance, we formulate and estimate its statistical analog based on simulated data. We show that the proposed statistical model adequately represents an illustrative sample from the QEH model. We also illustrate how estimates of the statistical model?s parameters can be used to assess the QEH model?s qualitative implications.

If 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.

File URL: http://www.econ.ku.dk/english/research/publications/wp/dp_2017/1710.pdf
Download Restriction: no

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 17-10.

as
in new window

Length: 38 pages
Date of creation: 22 Apr 2017
Handle: RePEc:kud:kuiedp:1710
Contact details of provider: Postal:
Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark

Phone: (+45) 35 32 30 10
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. F. Blasques & S. J. Koopman & A. Lucas, 2015. "Information-theoretic optimality of observation-driven time series models for continuous responses," Biometrika, Biometrika Trust, vol. 102(2), pages 325-343.
  2. Malcolm Baker & Jeffrey Wurgler, 2006. "Investor Sentiment and the Cross-Section of Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1645-1680, 08.
  3. Francisco Blasques & Siem Jan Koopman & André Lucas, 2014. "Maximum Likelihood Estimation for correctly Specified Generalized Autoregressive Score Models: Feedback Effects, Contraction Conditions and Asymptotic Properties," Tinbergen Institute Discussion Papers 14-074/III, Tinbergen Institute.
  4. Andrew Harvey & Alessandra Luati, 2014. "Filtering With Heavy Tails," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 109(507), pages 1112-1122, September.
  5. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, 06.
  6. Godfrey, Leslie G, 1978. "Testing for Higher Order Serial Correlation in Regression Equations When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1303-1310, November.
  7. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
  8. Diego García, 2013. "Sentiment during Recessions," Journal of Finance, American Finance Association, vol. 68(3), pages 1267-1300, 06.
  9. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
  10. Francisco Blasques & Siem Jan Koopman & André Lucas, 2014. "Optimal Formulations for Nonlinear Autoregressive Processes," Tinbergen Institute Discussion Papers 14-103/III, Tinbergen Institute.
  11. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:kud:kuiedp:1710. See general 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: (Thomas Hoffmann)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.