Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 57: Investment Plan Revisions and Share Price Volatility

Anders Johansson and Karl-Markus Modén
Additional contact information
Anders Johansson: University of Gothenburg, Postal: Vasagatan 1, SE-411 80 Gothenburg, Sweden
Karl-Markus Modén: The Research Institute of Industrial Economics (IUI), Postal: Storgatan 19, Box 5501, SE-114 85 Stockholm, Sweden

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.

JEL-codes: E22; E32; G14

31 pages, December 1, 1997

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