Risk behavior and rational expectations in the U.S. Broiler market

This study examines the empirical implications ofextending the rational expectations hypothesis (REH) to include price uncertainty. A general estimation framework that incorporates both the restrictions on structural parameters and the variance-covariance terms is developed. GARCH time-series processes are used to generate time-varying expectations ofboth the means and the variances ofexogenous variables. The empirical application is with a quarterly model ofthe U.S. broiler industry; the results indicate that the rational expectation ofprice variance is an important determinant of broiler supply. A formal test indicates that the restrictions implied by the REH cannot be rejected.