Profit Expectations and Investment
Bank of England - Monetary Analysis
Jamie N.R. Thompson
Bank of England
Bank of England Quarterly Bulletin, Winter 2002
This article examines the relationship between expectations of future profits and companies' physical investment. Theory suggests that increased profit expectations should raise share prices as well as investment. But this correlation between investment and share prices may be rather weak if investors' opinions of companies' prospects differ from those of the companies' managers. Using a simple aggregate investment equation, the article illustrates that measures of profit expectations based on current profits and analysts' earnings forecasts appear to be more informative for investment than stock prices themselves. This result is consistent with recent research at the Bank using company data.
Number of Pages in PDF File: 6Accepted Paper Series
Date posted: May 2, 2005
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.625 seconds