Measurement errors and tests for rationality

Jinook Jeong, G. S. Maddala

Research output: Contribution to journalArticle

20 Citations (Scopus)

Abstract

The traditional tests for rationality, the regression and volatility tests, have often rejected the hypothesis of rationality for survey data on expectations. It has been argued that these tests are not valid in the presence of unit roots and hence cointegration tests should be applied. The cointegration tests have often failed to reject the hypothesis of rationality. The present article argues that errors in variables affect tests of rationality. We use multiple sources of expectations to correct for the errors-in-variables bias but find that the hypothesis of rationality is rejected even after this correction. The article uses survey data on interest rates, stock prices, and exchange rates.

Original languageEnglish
Pages (from-to)431-439
Number of pages9
JournalJournal of Business and Economic Statistics
Volume9
Issue number4
DOIs
Publication statusPublished - 1991 Oct

Fingerprint

Rationality
Measurement Error
rationality
Errors in Variables
Cointegration
Survey Data
Unit Root
Stock Prices
Exchange rate
Interest Rates
interest rate
Volatility
Measurement error
Regression
Valid
regression
trend
Errors in variables
Survey data
Cointegration test

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Cite this

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Measurement errors and tests for rationality. / Jeong, Jinook; Maddala, G. S.

In: Journal of Business and Economic Statistics, Vol. 9, No. 4, 10.1991, p. 431-439.

Research output: Contribution to journalArticle

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