Department of Economics and Business Economics

The Qualitative Expectations Hypothesis: Model Ambiguity, Consistent Representations of Market Forecasts, and Sentiment

Research output: Working paper/Preprint Working paper

Standard

The Qualitative Expectations Hypothesis : Model Ambiguity, Consistent Representations of Market Forecasts, and Sentiment. / Frydman, Roman; Johansen, Søren; Rahbek, Anders; Tabor, Morten Nyboe.

Aarhus : Institut for Økonomi, Aarhus Universitet, 2017.

Research output: Working paper/Preprint Working paper

Harvard

APA

Frydman, R., Johansen, S., Rahbek, A., & Tabor, M. N. (2017). The Qualitative Expectations Hypothesis: Model Ambiguity, Consistent Representations of Market Forecasts, and Sentiment. Institut for Økonomi, Aarhus Universitet. CREATES Research Papers No. 2017-23

CBE

MLA

Frydman, Roman et al. The Qualitative Expectations Hypothesis: Model Ambiguity, Consistent Representations of Market Forecasts, and Sentiment. Aarhus: Institut for Økonomi, Aarhus Universitet. (CREATES Research Papers; Journal number 2017-23). 2017., 38 p.

Vancouver

Author

Frydman, Roman ; Johansen, Søren ; Rahbek, Anders ; Tabor, Morten Nyboe. / The Qualitative Expectations Hypothesis : Model Ambiguity, Consistent Representations of Market Forecasts, and Sentiment. Aarhus : Institut for Økonomi, Aarhus Universitet, 2017. (CREATES Research Papers; No. 2017-23).

Bibtex

@techreport{ceb53004587b40ce8974ba8e5ed6abb8,
title = "The Qualitative Expectations Hypothesis: Model Ambiguity, Consistent Representations of Market Forecasts, and Sentiment",
abstract = "We introduce the Qualitative Expectations Hypothesis (QEH) as a new approach to modeling macroeconomic and financial 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 specific 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.",
keywords = "Asset-Price Movements, Model Ambiguity, Models with Time-Varying Parameters, REH, Behavioral Finance, GAS Models",
author = "Roman Frydman and S{\o}ren Johansen and Anders Rahbek and Tabor, {Morten Nyboe}",
year = "2017",
month = jun,
day = "26",
language = "English",
series = "CREATES Research Papers",
publisher = "Institut for {\O}konomi, Aarhus Universitet",
number = "2017-23",
type = "WorkingPaper",
institution = "Institut for {\O}konomi, Aarhus Universitet",

}

RIS

TY - UNPB

T1 - The Qualitative Expectations Hypothesis

T2 - Model Ambiguity, Consistent Representations of Market Forecasts, and Sentiment

AU - Frydman, Roman

AU - Johansen, Søren

AU - Rahbek, Anders

AU - Tabor, Morten Nyboe

PY - 2017/6/26

Y1 - 2017/6/26

N2 - We introduce the Qualitative Expectations Hypothesis (QEH) as a new approach to modeling macroeconomic and financial 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 specific 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.

AB - We introduce the Qualitative Expectations Hypothesis (QEH) as a new approach to modeling macroeconomic and financial 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 specific 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.

KW - Asset-Price Movements, Model Ambiguity, Models with Time-Varying Parameters, REH, Behavioral Finance, GAS Models

M3 - Working paper

T3 - CREATES Research Papers

BT - The Qualitative Expectations Hypothesis

PB - Institut for Økonomi, Aarhus Universitet

CY - Aarhus

ER -