NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Revisions and Investment Plans and the Stock Market Rate of Return

Mark Schankerman

NBER Working Paper No. 3937
Issued in December 1991
NBER Program(s):AP

This paper explores the sources of uncertainty that cause firms to revise their capital investment plans and the stock market to revise its valuation of those firms. A simple method is developed to decompose the uncertainty governing revisions in investment plans and the stock market rate of return in micro, setoral and aggregate components, and to measure the degree of heterogeneity in micro responses to common disturbances. The method is applied to a panel data set of firms in the U.S. economy for the period 1950-1973. The empirical results show that the capital investment decision is governed primarily by idiosyncratic uncertainty, but common disturbances are more important for movements in the stock market rate of return.

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Document Object Identifier (DOI): 10.3386/w3937

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