If P^e is the expectation of an asset's price forecast and P^f is the optimal forecast of the asset's price, then if market participants have rational expectations

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Quizplus · Accepted Answer

If market participants have rational expectations, then the expectation of the asset's price forecast (P^e) should be equal to the optimal forecast of the asset's price (P^f). This is because market participants, who are expected to have all available information, will make rational decisions based on expected values that reflect all known information. Therefore, the expectation of the asset's price forecast and the optimal forecast of the asset's price should converge to the same value.

If Pe Is the Expectation of an Asset's Price Forecast

If P^e Is the Expectation of an Asset's Price Forecast