Original scientific paper
https://doi.org/10.1080/1331677X.2017.1305794
Are business forecasts of the construction sector rational? Survey-based evidence from Malaysia
Chin-Hong Puah
Shirly Siew-Ling Wong
Muzafar Shah Habibullah
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.
Keywords
Rational expectations hypothesis (REH); business survey; optimistic behaviour; construction sector; Malaysia
Hrčak ID:
182574
URI
Publication date:
1.12.2017.
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