TESTING RATIONAL EXPECTATION HYPOTHESIS ON FINANCIAL ANALYSTS EARNINGS FORECAST: A CASE STUDY IN UK

Dinh, Quang (2008) TESTING RATIONAL EXPECTATION HYPOTHESIS ON FINANCIAL ANALYSTS EARNINGS FORECAST: A CASE STUDY IN UK. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

The main objective of this dissertation is to test rational expectation hypothesis on

earnings forecast in United Kingdom market. Ordinary Least Squares (OLS) and Least

Absolute Deviation (LAD) are introduced and presented. The study examines the

efficiency of the analysts earnings forecast by testing efficiency regarding information

variables including past earnings levels and changes, extreme past earnings changes, past

returns, past forecast errors and past forecast revisions. Actual and forecasted earning per

share (EPS) of 550 selected companies in UK market over the period from 1988 to 2003 is

obtained. Three statistical regression and test applied to test the rational expectation

include pooled regression and Fama-MacBeth regression and Wald tests which have

shown a consistent result of rejecting the efficiency of analysts forecast in the UK market.

We also conduct and compare rational expectation tests using OLS and LAD. Least

Absolute Deviation is taken into consideration of heteroscedasticity and non-normal

distribution, so consistent with previous study we conclude that LAD is more

advantageous than OLS regarding to expectation hypothesis tests.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 23 Sep 2008
Last Modified: 26 Oct 2016 08:55
URI: http://eprints.nottingham.ac.uk/id/eprint/22041

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