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The Comparative Performance of Q-type and Dynamic Models of Firm Investment: Empirical Evidence from the UK

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  • Eleni Angelopoulou

    ()
    (Bank of Greece and Athens University of Economics and Business)

Abstract

In this paper two models of investment stemming from the neoclassical theory are derived in a unifying framework. The Q type models view the stock market valuation of a firm as an all-encompassing variable determining its investment decisions, while the Euler equation for investment highlights the dynamic nature of firms’ decisionmaking. A sample of 779 UK manufacturing companies listed in the London Stock Exchange in the period 1971-1990 is used to compare the empirical fit of the two different models of investment. Despite a number of difficulties, the Q model appears to be empirically superior delivering the desirable consistency between theory and data.

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File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper200527.pdf
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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 27.

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Length: 47 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:bog:wpaper:27

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Web page: http://www.bankofgreece.gr
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Keywords: Empirical investment models; Euler equation for investment; Q model;

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References

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  1. Sophocles N. Brissimis & Nicholas S. Magginas, 2004. "Forward-Looking Information in VAR Models and the Price Puzzle," Working Papers 10, Bank of Greece.
  2. Alexandros E. Milionis, 2003. "Modelling Economic Time Series in the Presence of Variance Non-Stationarity: A Practical Approach," Working Papers 07, Bank of Greece.
  3. Panayiotis P. Athanasoglou & Sophocles N. Brissimis & Matthaios D. Delis, 2005. "Bank-Specific, Industry-Specific and Macroeconomic Determinants of Bank Profitability," Working Papers 25, Bank of Greece.
  4. Heather D. Gibson & Euclid Tsakalotos, 2004. "Capital flows and speculative attacks in prospective EU member states," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(3), pages 559-586, 09.
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  6. Harris Dellas & George Tavlas, 2002. "Wage Rigidity and Monetary Union," Diskussionsschriften dp0219, Universitaet Bern, Departement Volkswirtschaft.
  7. Papazoglou, Christos & Pentecost, Eric J., 2004. "The dynamic adjustment of a transition economy in the early stages of transformation," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 547-561, September.
  8. George Stubos & Ioannis Tsikripis, 2005. "Regional Integration Challenges in South East Europe: Banking Sector Trends," Working Papers 24, Bank of Greece.
  9. Brissimis, Sophocles N. & Sideris, Dimitris A. & Voumvaki, Fragiska K., 2005. "Testing long-run purchasing power parity under exchange rate targeting," Journal of International Money and Finance, Elsevier, vol. 24(6), pages 959-981, October.
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  12. Nicholas G. Zonzilos, 2004. "Econometric Modelling at the Bank of Greece," Working Papers 14, Bank of Greece.
  13. Sophocles N. Brissimis & George Hondroyiannis & P. A. V. B. Swamy & George S. Tavlas, 2003. "Empirical Modelling of Money Demand in Periods of Structural Change: The Case of Greece," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(5), pages 605-628, December.
  14. Sophia, 2003. "Greek Monetary Economics in Retrospect: The Adventures of the Drachma," Working Papers 02, Bank of Greece.
  15. Theodoros S. Papaspyrou, 2004. "EMU Strategies: Lessons from Past Experience in View of EU Enlargement," Working Papers 11, Bank of Greece.
  16. Dimitrios Sideris & Nicholas G. Zonzilos, 2005. "The Greek Model of the European System of Central Banks Multi-Country Model," Working Papers 20, Bank of Greece.
  17. Yiannis Stournaras, 2005. "Aggregate Supply and Demand, the Real Exchange Rate and Oil Price Denomination," Working Papers 26, Bank of Greece.
  18. Thanasis N. Christodoulopoulos & Ioulia Grigoratou, 2003. "The Effect of Dynamic Hedging of Options Positions on Intermediate-Maturity Interest Rates," Working Papers 08, Bank of Greece.
  19. Panayotis Kapopoulos & Sophia Lazaretou, 2009. "Does corporate ownership structure matter for economic growth? A cross-country analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 155-172.
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Citations

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Cited by:
  1. John Williamson, 2006. "A Worldwide System of Reference Rates," Working Papers 45, Bank of Greece.
  2. Hans Genberg, 2006. "Exchange-Rate Arrangements and Financial Integration in East Asia: On a Collision Course?," Working Papers 152006, Hong Kong Institute for Monetary Research.
  3. P. Swamy & George Tavlas, 2007. "The New Keynesian Phillips Curve and Inflation Expectations: Re-Specification and Interpretation," Economic Theory, Springer, vol. 31(2), pages 293-306, May.
  4. Otmar Issing, 2006. "Europe's Hard Fix: The Euro Area," Working Papers 39, Bank of Greece.
  5. George A. Christodoulakis & Stephen E Satchell, 2006. "Exact Elliptical Distributions for Models of Conditionally Random Financial Volatility," Working Papers 32, Bank of Greece.
  6. Alexandros E. Milionis, 2006. "An Alternative Definition of Market Efficiency and some Comments on its Empirical Testing," Working Papers 50, Bank of Greece.

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