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Revisions of investment plans and the stock market rate of return

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  • Schankerman, Mark

Abstract

This paper explores the sources of uncertainty that cause firms to revise their capital investment plans and the stock market to revise its valuation of those firms. A simple method is developed to decompose the uncertainty governing revisions in investment plans and the stock market rate of return into micro, sectoral and aggregate components, and to measure the degree of heterogeneity in micro responses to common disturbances. The method is applied to a panel data set of fims in the U.S. economy for the period 1950-1973. The empirical results show that the capital investment decision is governed primarily by idiosyncratic uncertainty, but common disturbances are more important for movements in the stock market rate of return.

Suggested Citation

  • Schankerman, Mark, 1991. "Revisions of investment plans and the stock market rate of return," LSE Research Online Documents on Economics 3735, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:3735
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    File URL: http://eprints.lse.ac.uk/3735/
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    Citations

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    Cited by:

    1. J. Konings & H. Lehmann & M.E. Schaffer, 1996. "Job Creation and Job Destruction in a Transition Economy: Ownership, Firm Size," CERT Discussion Papers 9611, Centre for Economic Reform and Transformation, Heriot Watt University.
    2. Johansson, Anders & Modén, Karl-Markus, 1997. "Investment Plan Revisions and Share Price Volatility," Working Papers 57, National Institute of Economic Research.
    3. Owen A. Lamont, 2000. "Investment Plans and Stock Returns," Journal of Finance, American Finance Association, vol. 55(6), pages 2719-2745, December.
    4. Acemoglu, Daron & Scott, Andrew, 1997. "Asymmetric business cycles: Theory and time-series evidence," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 501-533, December.
    5. John Sutton, 2001. "Rich Trades, Scarce Capabilities: Industrial Development Revisited," STICERD - Economics of Industry Papers 28, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.

    More about this item

    Keywords

    capital investment plans; revisions; uncertainty; common disturbances; stock market rate of return.;
    All these keywords.

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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