Revisions of investment plans and the stock market rate of return

Mark Schankerman

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: capital investment plans; revisions; uncertainty; common disturbances; stock market rate of return. (search for similar items in EconPapers)
JEL-codes: J1 (search for similar items in EconPapers)
Pages: 47 pages
Date: 1991-11
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:3735

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