Liao, Junyi (2025) Adaptive Expectations and Reaction to Information. Economica. DOI https://doi.org/10.1111/ecca.70026
Liao, Junyi (2025) Adaptive Expectations and Reaction to Information. Economica. DOI https://doi.org/10.1111/ecca.70026
Liao, Junyi (2025) Adaptive Expectations and Reaction to Information. Economica. DOI https://doi.org/10.1111/ecca.70026
Abstract
This paper develops a model combining adaptive expectations with noisy signals and derives three coefficients and one impulse response function (IRF): the Coibion–Gorodnichenko (CG) coefficient capturing consensus underreaction to information, the Bordalo–Gennaioli–Ma–Shleifer (BGMS) coefficient capturing individual overreaction, the Kohlhas–Walther (KW) coefficient capturing extrapolation, and the Angeletos–Huo–Sastry (AHS) IRF capturing delayed over- shooting. There exists a parameter region in which the model reconciles all four moments with the data simultaneously. The model also delivers a testable prediction linking the CG coefficient to variable persistence, distinguishing adaptive expectations from Kalman-filter updating, and I present supporting evidence for adaptive expectations. The model’s fit to survey data is evaluated.
| Item Type: | Article |
|---|---|
| Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Essex Business School Faculty of Social Sciences > Essex Business School > Essex Finance Centre |
| SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
| Depositing User: | Unnamed user with email elements@essex.ac.uk |
| Date Deposited: | 19 Jan 2026 16:17 |
| Last Modified: | 19 Jan 2026 16:17 |
| URI: | http://repository.essex.ac.uk/id/eprint/41767 |
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