Revisions of Investment Plans and the Stock Market Rate of Return

Mark Schankerman

STICERD - Economics of Industry Papers from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

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 firms 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.

Keywords: capital investment plans; revisions; uncertainty; common disturbances; stock market rate of return. (search for similar items in EconPapers)
Date: 1991-11
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Citations: View citations in EconPapers (5)

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