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

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

Revisiting the Oil-Growth Nexus : Evidence from Selected Oil Importing and Oil Exporting Countries

This study investigates the impact of oil prices on economic growth in oil importing countries (China, Germany, Italy, India, Japan, Netherlands, South Korea, Spain and Thailand) and oil exporting countries (Brazil, Canada, Iran, Kuwait, Mexico, Nigeria, Norway, Russia, Saudi Arabia and United Arab Emirates), covering the period of 1995- 2021. Under the panel estimation approach, we can postulate that oil price is exerting a significantly positive impact towards economic growth for oil exporting nations, regardless of whether the time horizon is in short run or long-run contexts. On the other hand, oil importing nations tend to experience negative impact from the oscillatory fluctuations in the oil price. It is proposed that policy makers in oil importing nations can respond to the positive oil price shock can be lessened by hedging product purchases using futures contracts on net oil-importing nations with poor exports of other commodities. Alternatively, for net oil-importers, pricing-based policies such as transferring price increases to consumers and providing subsidies can be implemented to reduce the negative effect of oil prices hikes towards the economy

Forecasting malaysian business cycle movement: empirical evidence from composite leading indicator

Early detection of a turning point in a business cycle is crucial, as information about the changing phases in business cycles enables policy makers, the business community, and investors to cope better with unexpected events brought about by economic and business situations. The Malaysian economy is fortunate to own a publicly accessible composite of leading indicator (CLI) that is presumed capable of tracing the business cycle movement and thus contributes to the creation of an early signaling tool for short-term economic forecasting. Certainly, the usefulness of this CLI in monitoring the contemporary economic and business condition in Malaysia will be empirically appealing to the nation. Even though the present study can display the ability of the Malaysian CLI to trace the business cycle and offers advanced detection of business cycle turning points, the evidence of diminishing lead times foreseen by the CLI significantly weaken the fundamental function of a leading index as an early tool to signal economic vulnerability.Business Cycle; Composite Leading Indicator; Early Signaling Tool

Rationality of business operational forecasts: evidence from Malaysian distributive trade sector

The underlying nature of forecast optimization makes the rational expectations hypothesis (REH) a framework that is theoretically consistent with the expectations formation produced by economic agents under well-defined assumptions of unbiased forecasts and efficient utilization of available information. Most of the recent literature on REH testing has favored a direct procedure based on survey data to validate the theoretical soundness of REH. However, the ability of survey materials to reflect the economic agent’s true expectations remains unconvincing, as previous empirical studies on survey-based expectations have offered mixed evidence of forecast rationality. The present study involved an attempt to evaluate the forecast rationality of survey materials from the Malaysian perspective, as empirical evidence from the view of a developing nation is clearly limited. An expectational series on gross revenue and capital expenditure, spanning 1978 through 2007, was subjected to tests of unbiasedness, non-serial correlation, and efficiency to observe whether the business operational forecasts contributed by the distributive trade sector in Malaysia can be accepted as rational forecasts of the actual realized values. We found that both operational variables are being irrationally constructed, suggesting that forecasters in the distributive trade sector are not rational when they formulate business expectations. Thus, business firms in the examined sector are encouraged to incorporate more relevant information into their business operational forecasts to facilitate more accurate and realistic business forecasting

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

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

Are business forecasts of the construction sector rational? Survey-based evidence from Malaysia

This paper extends the direct measure to business expectations in assessing the doctrine of forecast rationality in the contemporary environment of Malaysia’s construction sector. The survey’s expectational series on business operational forecasts across the period 1990 to 2010 is inconsistent with Muth’s concept of rational expectations. Although strict rationality failed to be evidenced, weakly rational conduct can be observed in capital expenditure forecasts. Nevertheless, both operational variables in question are optimistically biased upward and neither of them can accurately reflect the true market perception. This evidence casts doubt on the usefulness of the investigated survey series in providing a realistic panorama of the construction sector in the near future. Notwithstanding, the irrational upshot may drop a hint to the reader on the root of alarming property overhang and price hikes in construction-related markets since expectations play a foremost role in providing equilibrium in the supply and demand in this growth-initiating market

Rationality of business operational forecasts: evidence from Malaysian distributive trade sector

The underlying nature of forecast optimization makes the rational expectations hypothesis (REH) a framework that is theoretically consistent with the expectations formation produced by economic agents under well-defined assumptions of unbiased forecasts and efficient utilization of available information. Most of the recent literature on REH testing has favored a direct procedure based on survey data to validate the theoretical soundness of REH. However, the ability of survey materials to reflect the economic agent’s true expectations remains unconvincing, as previous empirical studies on survey-based expectations have offered mixed evidence of forecast rationality. The present study involved an attempt to evaluate the forecast rationality of survey materials from the Malaysian perspective, as empirical evidence from the view of a developing nation is clearly limited. An expectational series on gross revenue and capital expenditure, spanning 1978 through 2007, was subjected to tests of unbiasedness, non-serial correlation, and efficiency to observe whether the business operational forecasts contributed by the distributive trade sector in Malaysia can be accepted as rational forecasts of the actual realized values. We found that both operational variables are being irrationally constructed, suggesting that forecasters in the distributive trade sector are not rational when they formulate business expectations. Thus, business firms in the examined sector are encouraged to incorporate more relevant information into their business operational forecasts to facilitate more accurate and realistic business forecasting

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

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