Investment Plans and Stock Returns
Year: 2000
Type: article
Abstract: When the discount rate falls, investment should rise. Thus with time‐varying discount rates and instantly changing investment, investment should positively covary with current stock returns and negatively covary with future stock returns. Aggregate nonresidential U.S. investment contradicts both these implications, probably because of investment lags. Investment plans, however, satisfy both implications. These investment plans, from a U.S. government survey of firms, are highly informative measures of expected investment and explain more than three‐quarters of the variation in real annual aggregate investment growth. Plans have substantial forecasting power for excess stock returns, showing that time‐varying risk premia affect investment.
Source: The Journal of Finance
Author: Owen A. Lamont
Institutions: National Bureau of Economic Research, University of Chicago
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3121225256