THE QUALITATIVE EXPECTATIONS HYPOTHESIS: MODEL AMBIGUITY, CONSISTENT REPRESENTATIONS OF MARKET FORECASTS, AND SENTIMENT
Soren Johansen (),
Anders Rahbek and
Additional contact information
Roman Frydman: Department of Economics, New York University.
Anders Rahbek: Department of Economics, University of Copenhagen
Morten Nyboe: Department of Economics, University of Copenhagen
No 17-10, Discussion Papers from University of Copenhagen. Department of Economics
We introduce the Qualitative Expectations Hypothesis (QEH) as a new approach to modeling macroeconomic and ?nancial 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 speci?c 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 (search for similar items in EconPapers)
JEL-codes: D84 C65 G02 G12 C51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Working Paper: The Qualitative Expectations Hypothesis: Model Ambiguity, Consistent Representations of Market Forecasts, and Sentiment (2606)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:1710
Access Statistics for this paper
More papers in Discussion Papers from University of Copenhagen. Department of Economics Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().