Expectations and Investment
Chapter in NBER book NBER Macroeconomics Annual 2015, Volume 30 (2016), Martin Eichenbaum and Jonathan A. Parker, editors (p. 379 - 431)
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.
Document Object Identifier (DOI): https://doi.org/10.1086/685965This chapter first appeared as NBER working paper w21260, Expectations and Investment, Nicola Gennaioli, Yueran Ma, Andrei Shleifer
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