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This paper discusses an article appearing in the summer 1998 issue of the "Journal of Accounting, Auditing & Finance" regarding a dispersion in analysts' earnings forecasts. Dispersion in analysts' earnings forecasts reflect uncertainty about the business' future economic performance. This instrument improves accounting literature in three ways. First, it employs detailed analysts forecast data to estimate analyst forecast dispersion and revision. Second, it relates forecast dispersion to both analyst earning forecast revision and stock price reaction to the subsequent earnings announcement. Finally, it includes the interim quarters along with the annual report.

This study examines whether dispersion in analysts' earnings forecasts reflects uncertainty about firms' future economic performance. Prior research examining this issue has been inconclusive. These studies have concluded that forecast dispersion is likely to reflect factors other than uncertainty about future cash flows, such as uncertainty about the price irrelevant component of firms' financial reports (Daley et al. [1988]; Imhoff and Lobo [1992]). Abarbanell et al. (1995) argue that, if forecast dispersion after (i.e., conditional on) an earnings announcement reflects uncertainty about firms' future cash flows and this uncertainty causes investors to desire additional information, then dispersion will be positively associated with both (a) the level of demand for more information and (b) the magnitude of price reactions around the subsequent earnings release. In this study, we construct a measure of informational demand using the incidence of analyst forecast updating after dispersion is measured. We find a positive association between dispersion in earnings forecasts after an earnings release and this measure of informational demand. We also find a positive association between forecast dispersion and the magnitude of price reactions around subsequent earnings releases. These associations are most apparent when potentially stale (or outdated) forecasts are removed from measures of forecast dispersion. These associations also persist after controlling for other measures of uncertainty (e.g., beta and the variance of daily stock returns), consistent with dispersion in analysts' earnings forecasts serving as a useful indicator of uncertainty about the price relevant component of firms' future earnings. [ABSTRACT FROM AUTHOR]

The article presents a study of rational expectations and financial ratio smoothing. Dynamic adjustment models have been used in traditional accounting and financial analysis to capture the temporal pattern of financial ratios. Empirical studies of financial ratio adjustment based on these models typically use the current or past industry average ratio as the desired target. The determination of the correct desired target ratio is important for analyzing financial ratio adjustment. The issue of expectation formation is relevant for the type of financial ratio adjustment model considered here involving an adjustment lag. When there is no adjustment lag, expectations are generally irrelevant because a firm can always respond to any change in the market conditions. The paper proposes a rational expectations-partial adjustment model to explain the behavior of some important financial ratios. The model incorporates a process of expectation formation, which is considerably more general than any of the previous specifications in the financial ratio movements rather well.

This article proposes an integration of mean-variance portfolio theory and multivariate statistical theory in order to estimate the optimal trading strategy and the maximum welfare gain from knowledge of an economic economic event. It established an economic value for private information and public information in events such as accounting earnings announcements. It does so by postulating a noisy rational expectations market where informed agents receive information signals on a finite number of securities' returns. The result of the information signal is that informed agents see security return moments differently from the representative uninformed agent. Agents are assumed to behave rationally in a sense that they choose optimal asset portfolios, conditional on their respective information sets and return moments. The maximum value of the welfare gain is important because it places an upper bound on the value of the accounting announcement. The ability to place an upper bound on information value derives from the assumption of the noisy rational expectations return generating model.

The article discusses the need for the creators of accounting principles to consider the substance of transactions as conceived by the outside world. Accountants are indirectly involved in all the economic trends that emerge, including the newest catchphrase in the 1970s, rational expectations. The concept suggests that people make important decisions according to their perceptions of past and future conditions. Accounting seems to depart from reality when recording transactions involving rational expectations. This departure stems from accountants' desire to separate the results of a transaction into its components in contrast to the desire of management to determine how the whole project came out.

The article presents two views of rational behavior in choosing income strategies. The traditional approach, assumes a person chooses to maximize his expected income. However, economists investigating such choices often use data which do not take into consideration alternatives open to the person making the choice. These moves may be deliberate pathways to success or unfortunate indications of failure. But expected income from any strategy will not be the same as the mean income of people who have ended up with the chosen characteristics. Maximizing expected income is unlikely to be a good statistical proxy function in a risky world where people maximize the expected utility of income. An alternative function to maximize the probability of achieving above a specified income is presented. Probabilities of high income were estimated for Negroes showing the southern Negro generally has great incentive to move North, and all Negroes have great incentive to continue their education. This indicates more black schooling, migration, and, in the absence of reward for those accomplishments, greater frustration.

Integrating national markets is a major policy target in the European energy market. Yet, wholesale prices for electricity still differ significantly. Whether these price differences are caused only by limited interconnector capacities or also by lack of cross-border competition is an open question. To address this question, we develop a new approach to determine to which extent price differences stem from limited participation in cross-border trade. We derive a theoretical integration benchmark, using Grossman's (1976) notion of rational expectations equilibrium. We compare the benchmark to data from European electricity markets. The data reject the integration hypothesis and indicate that well-informed traders do not engage in cross-border trade. [ABSTRACT FROM AUTHOR]

The central intent of this econometric case study analysis is to examine the relationship between discounting room rates and hotel financial performance. The study provides a theoretical framework that investigates the fundamentals of discounting and empirically assesses the efficacy of the discounting process in the lodging industry. The study adopts an error correction model to properly account for the dynamics of the industry. The results indicate that the variables may be modeled as an integrated process and which are linked in the long run and also possess a short-term relationship. The research findings suggest that discounting works both in the short term and the long term only if the discount rate exhibits serial correlation or nonstationary tendencies. [ABSTRACT FROM PUBLISHER]

One of the perennial questions in the scientific study of war is how war affects the economy. The authors examine the influence that the political developments within three war regions had on global financial markets (CAC, Dow Jones, FTSE) from 1990 to 2000. They embed a rational expectation framework within commercial liberalism, a theoretical strand that tries to assess the interrelationship between war and economic exchanges. Time-series analyses account for the effects that the conflict between Israel and the Palestinians, the first confrontation of a U.S.-led alliance against Iraq, and the wars fought in Ex-Yugoslavia exerted. Using daily stock market data, the authors show that the conflicts affected the interactions at the core financial markets in the Western world negatively, if they had any systematic influence at all. [ABSTRACT FROM AUTHOR]

When progress in applied research slows because opposing coalitions of investigators privilege their favored models, methodologists can contribute by addressing a tractable unresolved question that is relevant to all competing positions. In this article, the literature on educational attainment is addressed, broadly by focusing on alternative positions on the need to model students' own beliefs and more narrowly by attempting to answer a classic question that emerged in debates over the power of status attainment approaches: Why is the relationship between educational expectations and subsequent educational attainment weaker for Blacks than for Whites? Five complementary models of the causal effect of expectations on attainment are offered: a traditional path model, an average effects instrumental variable model, a countetfactual analysis of bounds, a rational expectations forecasting model, and a panel data model at updated expectations. [ABSTRACT FROM AUTHOR]

Investigates the responses of rotational agricultural to social and environmental changes in the event that farmers have rational expectations. Expectations of the values of key economic variables; Spatial model of endogenous expectations in rotational agriculture; Analysis; Replication of key features of rotational agriculture.

The article aims to contribute to the study of collective movement. Its focus is on the horizontal since earlier work has dealt with vertical movement. The views of four different schools of economics, such as the Chicago school in Illinois, the rational expectations school, the Malthusian school, and the Veblenian school, were adapted as models. These models will be represented in a form from which their commonsense plausibility will be apparent. At the heart of Chicago economics is the law of the invisible bumper which states that if every person drives in whatever direction he or she wishes at whatever speed he or she finds convenient, everyone will get to their destination with the least total expenditure of gas.

The article presents information of inequality for qualitative variables and concentration curves. Paul Allison (1978) has written an incisive article on measures of inequality, but he does not deal with two situations that are common enough to sociological studies to deserve attention. Although data in the ordinal, or nominal scale are common to sociological studies. Allison's article also does not discuss a problem that arises with the characterization of the Lorenz curve with one parameter the breakdown of a constant elasticity assumption for the entire range of income. In a ration-scale situation such as comparing the relative position of a population in regard to two characteristics for example, income and expenditure for a particular commodity it is important to remember that a commodity may be a luxury to a certain segment of the population, a necessity to some, and a semiluxury to others. The assumption of constant elasticity through the whole range of income in order to characterize the Lorenz curve by a single parameter is unrealistic.

Illustrates the mechanics of the rational expectations models and their perspective on policy. Behavior of farmers with rational expectations; Implication of the stock market for rational expectations; Importance of markets for future delivery of agriculture commodities.

Investigates concepts of rationality in economics. Philosophical views about rationality; Economists' conceptions of rational choice by individuals; Analysis of the rationality of groups.