Expectations and Investment

52 Pages Posted: 7 Jun 2016

See all articles by Nicola Gennaioli

Nicola Gennaioli

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Yueran Ma

University of Chicago - Booth School of Business

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2016

Abstract

Using micro data from the 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 the 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 behaviour.

Keywords: Expectations, corporate investment, behavioral macroeconomics

JEL Classification: E03, E22, E32, G31

Suggested Citation

Gennaioli, Nicola and Ma, Yueran and Shleifer, Andrei, Expectations and Investment (May 2016). BIS Working Paper No. 562, Available at SSRN: https://ssrn.com/abstract=2789734

Nicola Gennaioli (Contact Author)

Bocconi University - Department of Finance ( email )

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Milano, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

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Milan, 20136
Italy

Yueran Ma

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States

Andrei Shleifer

Harvard University - Department of Economics ( email )

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Cambridge, MA 02138
United States
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HOME PAGE: http://www.economics.harvard.edu/~ashleife/

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

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