01999cam a22002657 4500001000600000003000500006005001700011008004100028100002400069245016000093260006600253490005100319500001600370520068700386530006101073538007201134538003601206690013901242690012901381700002201510710004201532830008601574856003701660856003601697t0175NBER20180427045133.0180427s1995 mau||||fs|||| 000 0 eng d1 aMetcalf, Gilbert E.10aInvestment Under Alternative Return Assumptionsh[electronic resource]:bComparing Random Walks and Mean Reversion /cGilbert E. Metcalf, Kevin A. Hassett. aCambridge, Mass.bNational Bureau of Economic Researchc1995.1 aNBER technical working paper seriesvno. t0175 aMarch 1995.3 aMany recent theoretical papers have come under attack for modeling prices as Geometric Brownian Motion. This process can diverge over time, implying that firms facing this price process can earn infinite profits. We explore the significance of this attack and contrast investment under Geometric Brownian Motion with investment assuming mean reversion. While analytically more complex, mean reversion in many cases is a more plausible assumption, allowing for supply responses to increasing prices. We show that cumulative investment is generally unaffected by the use of a mean reversion process rather than Geometric Brownian Motion and provide an explanation for this result. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aC6 - Mathematical Methods • Programming Models • Mathematical and Simulation Modeling2Journal of Economic Literature class. 7aE2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy2Journal of Economic Literature class.1 aHassett, Kevin A.2 aNational Bureau of Economic Research. 0aTechnical Working Paper Series (National Bureau of Economic Research)vno. t0175.4 uhttp://www.nber.org/papers/t017541uhttp://dx.doi.org/10.3386/t0175