Working Papers, Konjunkturinstitutet - National Institute of Economic Research
Anders Johansson and Karl-Markus Modén
Investment Plan Revisions and Share Price Volatility
Abstract: The aim of this paper is to investigate the nature of the
links between the stock market reactions to significant news in the
information set, relevant to investment decisions, and how firms from a
panel revise their investment plans in light of the same information. The
data on revisions in investment plans also makes it possible to estimate
the relative importance of different sources of uncertainty: micro,
sectoral or macro, which is an important issue in business cycle research.
It is also relevant for models of investment behavoiur and for empirical
models on panel data. The statistical method we use is nested (co-)
variance components. Our main findings are that the link between stock
market reactions to news and the firms revisions of investment plans is
weak, and that microlevel uncertainty is the dominant source of uncertainty
driving fluctuations in investment spending.
Keywords: News; Information sets; Sources of Uncertainty.; (follow links to similar papers)
JEL-Codes: E22; E32; G14; (follow links to similar papers)
31 pages, December 1, 1997
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