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Expectations and Investment

In: NBER Macroeconomics Annual 2015, Volume 30

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  • Nicola Gennaioli
  • Yueran Ma
  • Andrei Shleifer

Abstract

Using micro data from Duke University quarterly survey of Chief Financial Officers, we show that corporate investment plans as well as actual investment are well explained by CFOs' expectations of earnings growth. The information in expectations data is not subsumed by traditional variables, such as Tobin's Q or discount rates. We also show that errors in CFO expectations of earnings growth are predictable from past earnings and other data, pointing to extrapolative structure of expectations and suggesting that expectations may not be rational. This evidence, like earlier findings in finance, points to the usefulness of data on actual expectations for understanding economic behavior.
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Suggested Citation

  • Nicola Gennaioli & Yueran Ma & Andrei Shleifer, 2015. "Expectations and Investment," NBER Chapters,in: NBER Macroeconomics Annual 2015, Volume 30, pages 379-431 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:13589
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    Cited by:

    1. Crump, Richard K. & Eusepi, Stefano & Tambalotti, Andrea & Topa, Giorgio, 2015. "Subjective intertemporal substitution," Staff Reports 734, Federal Reserve Bank of New York.
    2. Maiko Koga & Haruko Kato, 2017. "Behavioral Biases in Firms' Growth Expectations," Bank of Japan Working Paper Series 17-E-9, Bank of Japan.
    3. Crump, Richard K. & Eusepi, Stefano & Moench, Emanuel, 2016. "The term structure of expectations and bond yields," Staff Reports 775, Federal Reserve Bank of New York, revised 01 Apr 2018.
    4. Bachmann, Rüdiger & Elstner, Steffen, 2015. "Firm optimism and pessimism," European Economic Review, Elsevier, vol. 79(C), pages 297-325.
    5. Giorgio Fagiolo & Andrea Roventini, 2017. "Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 20(1), pages 1-1.
    6. Giovanni Dosi & Mauro Napoletano & Andrea Roventini & Joseph Stiglitz & Tania Treibich, 2017. "Rational Heuristics ? Expectations and behaviors in Evolving Economies with Heterogeneous interacting agents," Sciences Po publications 32, Sciences Po.
    7. Kuchler, Theresa & Zafar, Basit, 2015. "Personal Experiences and Expectations about Aggregate Outcomes," IZA Discussion Papers 9444, Institute for the Study of Labor (IZA).
    8. repec:bfr:rueban:2017:44 is not listed on IDEAS
    9. Kuang, Pei & Mitra, Kaushik, 2016. "Long-run growth uncertainty," Journal of Monetary Economics, Elsevier, vol. 79(C), pages 67-80.
    10. repec:eee:eneeco:v:66:y:2017:i:c:p:54-68 is not listed on IDEAS
    11. Matthieu Bussière & Laurent Ferrara & Juliana Milovich, 2017. "Explaining the recent slump in investment: the role of expected demand and uncertainty," Rue de la Banque, Banque de France, issue 44, may..
    12. Stefano Giglio & Bryan Kelly, 2016. "Excess Volatility: Beyond Discount Rates," NBER Working Papers 22045, National Bureau of Economic Research, Inc.
    13. repec:eee:finlet:v:21:y:2017:i:c:p:235-240 is not listed on IDEAS
    14. Benchimol, Jonathan & Bounader, Lahcen, 2018. "Optimal Monetary Policy Under Bounded Rationality," Globalization and Monetary Policy Institute Working Paper 336, Federal Reserve Bank of Dallas.
    15. repec:eee:jeborg:v:145:y:2018:i:c:p:66-79 is not listed on IDEAS
    16. Massenot, Baptiste & Pettinicchi, Yuri, 2018. "Can firms see into the future? Survey evidence from Germany," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 66-79.
    17. Jean-Philippe Bouchaud & Stefano Ciliberti & Augustin Landier & Guillaume Simon & David Thesmar, 2016. "The Excess Returns of "Quality" Stocks: A Behavioral Anomaly," Papers 1601.04478, arXiv.org.
    18. repec:eee:macchp:v2-1065 is not listed on IDEAS

    More about this item

    JEL classification:

    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G3 - Financial Economics - - Corporate Finance and Governance

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