adaptive exectation theory states that people form their expectations based on what has happened in the past. Individual revises her expectation about future price in view of her current expectational error. The future expectation is formed as the sum of past expectations with the expectational errors, weighted by a coefficient of revision of expectations.
rational expectation theory points out that the rational expectation equates the best forecast using all available information. It is the basis of efficient market hypothesis. The expected value of a variable is equal to the expected value predicted by the model without expectational error.
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