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Prediction ability and investment under uncertainty

Author

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  • Takii, Katsuya

Abstract

This paper provides a theoretical framework for analyzing one of the most important intangible assets in a firm: the ability to predict profitable investment opportunities. This paper shows theoretically how to measure the accuracy of information used to predict opportunities, and estimates the value of information in the context of a firm's investment decision problem. Empirical study confirms the theoretical results of the model: (1) prediction ability has a large positive impact on firm's expected profits; and (2) prediction ability increases the mean and the variance of the growth rate of a firm's capital stock.
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Suggested Citation

  • Takii, Katsuya, 2000. "Prediction ability and investment under uncertainty," Economics Discussion Papers 9991, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:9991
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    File URL: https://repository.essex.ac.uk/9991/
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    Cited by:

    1. Katsuya Takii, 2004. "Entrepreneurial Efficiency: An Empirical Framework and Evidence," Macroeconomics 0411006, University Library of Munich, Germany.
    2. Katsuya Takii, 2003. "Prediction Ability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 80-98, January.
    3. Bart Hobijn & Boyan Jovanovic, 2001. "The Information-Technology Revolution and the Stock Market: Evidence," American Economic Review, American Economic Association, vol. 91(5), pages 1203-1220, December.
    4. Takii, Katsuya, 2000. "Prediction ability and investment under uncertainty," Economics Discussion Papers 9991, University of Essex, Department of Economics.

    More about this item

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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