Revisions and Investment Plans and the Stock Market Rate of Return

47 Pages Posted: 24 Jul 2007 Last revised: 6 Oct 2022

See all articles by Mark A. Schankerman

Mark A. Schankerman

London School of Economics and Political Science; Centre for Economic Policy Research (CEPR)

Date Written: December 1991

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 in micro, setoral 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.

Suggested Citation

Schankerman, Mark A., Revisions and Investment Plans and the Stock Market Rate of Return (December 1991). NBER Working Paper No. w3937, Available at SSRN: https://ssrn.com/abstract=476119

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