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Investment Plans and Stock Returns."

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  • OWEN LAMONT

Abstract

When the discount rate falls, investment should rise. Thus with time-varying discount rates and instantly changing investment, investment should positively covary with current stock returns and negatively covary with future stock returns. Aggregate nonresidential U.S. investment contradicts both these implications, probably because of investment lags. Investment plans, however, satisfy both implications. These investment plans, from a U.S. government survey of firms, are highly informative measures of expected investment and explain more than three-quarters of the variation in real annual aggregate investment growth. Plans have substantial forecasting power for excess stock returns, showing that time-varying risk premia affect investment. Copyright The American Finance Association 2000.

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Paper provided by Center for Research in Security Prices, Graduate School of Business, University of Chicago in its series CRSP working papers with number 488.

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Handle: RePEc:wop:chispw:488

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  1. Campbell, John Y & Mei, Jianping, 1993. "Where Do Betas Come From? Asset Price Dynamics and the," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(3), pages 567-92.
  2. Mark Schankerman, 1991. "Revisions of investment plans and the stock market rate of return," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3735, London School of Economics and Political Science, LSE Library.
  3. Richard W. Kopcke, 1993. "Forecasting investment with models and surveys of capital spending," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Mar, pages 47-69.
  4. Cochrane, John H, 1991. " Production-Based Asset Pricing and the Link between Stock Returns and Economic Fluctuations," Journal of Finance, American Finance Association, American Finance Association, vol. 46(1), pages 209-37, March.
  5. Robert J. Barro, 1989. "The Stock Market and Investment," NBER Working Papers 2925, National Bureau of Economic Research, Inc.
  6. Dexter Keezer & Robert Ulin, 1960. "Observations on the Predictive Quality of Mcgraw-Hill Surveys of Business' Plans for New Plants and Equipment," NBER Chapters, in: The Quality and Economic Significance of Anticipations Data, pages 369-386 National Bureau of Economic Research, Inc.
  7. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
  8. Chen, Nai-Fu, 1991. " Financial Investment Opportunities and the Macroeconomy," Journal of Finance, American Finance Association, American Finance Association, vol. 46(2), pages 529-54, June.
  9. Mark Schankerman, 1991. "Revisions of Investment Plans and the Stock Market Rate of Return," STICERD - Economics of Industry Papers 05, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  10. Olivier Blanchard & Changyong Rhee & Lawrence Summers, 1990. "The Stock Market, Profit and Investment," NBER Working Papers 3370, National Bureau of Economic Research, Inc.
  11. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1990. "The Stock Market and Investment: Is the Market a Sideshow?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 157-216.
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