Efficiency and formation of expectations: evidence from the European investment survey

Abstract

The European Commission conducts an annual survey regarding planned and realized business fixed investment across various manufacturing sectors in Euroland. In this study we investigate the predictive content of survey-based expectations on investment. In addition, we empirically test the rationality of respondents both in a time series as well as in a panel context. According to our results, based on pooling the data, efficiency is rejected since expectations are biased predictors of actual outcomes. Furthermore, expectations revisions are found to be correlated with components of the information set known at the time of decision making. Finally, our results qualify regressive expectations as the mechanism that more adequately describes the formation of expectations.

A note on bank loan officers' expectations for credit standards: Evidence from the European bank lending survey

“…Following Drakos (2008), we examine the REH by employing the following model: Following Drakos (2008), we examine the REH by employing the following model:…”

“…According to Drakos (2008), in order to accept the adaptive expectations hypothesis, the only restriction that should hold is that the coefficient of adaptations has to lie in the interval (−1, 0). According to Drakos (2008), in order to accept the adaptive expectations hypothesis, the only restriction that should hold is that the coefficient of adaptations has to lie in the interval (−1, 0).…”

“…According to Drakos (2008), in order to accept the adaptive expectations hypothesis, the only restriction that should hold is that the coefficient of adaptations has to lie in the interval (−1, 0). According to Pesaran and Weale (2006), Drakos (2008), and Dave (2010), regressive expectations are specified as follows: Namely, agents believe that the variable under scrutiny exhibits a tendency to move towards its mean (Drakos, 2008).…”

“…For instance, in the case of the euro area, a typical "soft" information set is provided by the bank lending survey (BLS hereafter), whose integral part are the responses of bank loan officers regarding the future trajectory of loan credit standards (CSs hereafter) set by their banks. A way to bypass this disadvantage is to measure expectations by relying on survey data (Drakos, 2008;Miah, Saifur, &Khalid, 2016 andPesaran &Weale, 2006). This is exactly the aim of our analysis, where we will exploit survey responses from consecutive surveys in order to investigate how bank loan officers' expectations of future CS perform when confronted with realized outcomes.…”

Are Investment Expectations Rational, Adaptive or Regressive?

“…Following Pesaran and Weale (2006) and Drakos (2008) the regressive expectations hypothesis can be stated as where g is the average over plants and time of Actual it . This expectations formation mechanism suggests that plants adjust expectations to a fraction of last period's realizations' deviation from its mean, that is, investment expenditures move toward its mean.…”