Tests of a Partial Adjustment Model of Financial Ratios
This article considers the formation of expectations in the financial ratio adjustment. An empirical model consistent with the rational-expectations hypothesis is formulated to analyze the dynamic adjustment pattern of financial ratios. The nonlinear regression method is used to estimate the paramet...
Saved in:
| Main Authors: | , , |
|---|---|
| Format: | text |
| Language: | English |
| Published: |
Institutional Knowledge at Singapore Management University
1992
|
| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/862 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Institution: | Singapore Management University |
| Language: | English |
| Summary: | This article considers the formation of expectations in the financial ratio adjustment. An empirical model consistent with the rational-expectations hypothesis is formulated to analyze the dynamic adjustment pattern of financial ratios. The nonlinear regression method is used to estimate the parameters of the rational-expectations model and to test the validity of rationality. The empirical results show that the rational-expectations model explains the dynamic adjustment of financial ratios reasonably well. The results also show that the rational-expectations model provides a more efficient framework than the simple partial adjustment model for predicting the future ratios. |
|---|