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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.

Suggested Citation

  • Wong, Shirly Siew-Ling & Puah, Chin-Hong & Shazali, Abu Mansor, 2011. "Survey Evidence on the Rationality of Business Expectations: Implications from the Malaysian Agricultural Sector," MPRA Paper 36661, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:36661
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    File URL: https://mpra.ub.uni-muenchen.de/36661/1/MPRA_paper_36661.pdf
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    References listed on IDEAS

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    Cited by:

    1. 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.
    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. 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.

    More about this item

    Keywords

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

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • 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
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General

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