Shirly Siew-Ling Wong

Testing rational expectations hypothesis in the manufacturing sector in Malaysia

The application of rational expectations hypothesis (REH) in macroeconomic research has marked a revolution in economic thinking, and the magnitude of its impact on the world of economics is undeniably significant. However, the extent to which REH applies in real-world settings is ambiguous even though the concept of REH is well established in economics literature because empirical evidence from previous studies is clearly mixed. This study used survey data on gross revenue and capital expenditures to examine the validity of REH in Malaysian manufacturing business expectations. Empirical results indicated that the manufacturers’ expectations are being irrationally constructed in terms of gross revenue predictions but comply with REH properties in Muths sense in the case of capital expenditures forecasts. Therefore, manufacturing firms in Malaysia are encouraged to incorporate more relevant information into their gross revenue predictions to provide more accurate and realistic forecasting.

Forecasting Malaysian Business Cycle Movement

For years, economists have sought to summarize the visual evidence of cyclical oscillation in economic series to learn the characteristics of such cycles in real macroeconomic settings. The existence of various business cycle conceptions indeed shared a single objective, that is, to strengthen insight into the underlying thoughts behind recurring ups and downs in economic activity (Burns & Mitchell, 1946). However, the cyclical fluctuations in economic activity hardly follow a predictable pattern, as the size of expansion and contraction deviate across periods, each turning point in the business cycle presents certain crucial information that contains indications on future changing phases of the economy. Also, development in leading indicator analysis persuasively suggests that combinations of sets of leading series to form a unique composite index is generally better than any single series in explaining the cyclical movement.

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

Abstract 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.

Survey evidence on the rationality of business expectations on Malaysian agricultural sector

The rational expectations hypothesis (REH) serves as an appealing mechanism in forming expectations because of its consistency with the basic principles of maximizing behavior. The present study intends to provide empirical support of forecast rationality in the context of survey-based business expectations, particularly in agriculture-based entities in Malaysia. Three rationality tests which include unbiasedness test, non-serial correlation test and weak form efficiency test have been utilized in the study. Empirical findings 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.