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

  • Eleni Angelopoulou

    ()

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

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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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
Contact details of provider: Web page: http://www.bankofgreece.gr

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  18. Brissimis, Sophocles N. & Magginas, Nicholas S., 2006. "Forward-looking information in VAR models and the price puzzle," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1225-1234, September.
  19. Harris Dellas & George Tavlas, 2003. "The Global Implications of Regional Exchange Rate Regimes," Working Papers 082003, Hong Kong Institute for Monetary Research.
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