Expectations and Investment

Financial Simulation and Investment Expectations

Financial Simulation and Investment Expectations

Executive summary Future investment returns are uncertain; no reliable means to foresee them exists. However, institutions and individuals making financial decisions need an approach to model the range of possible future returns. Any approach requires two fundamental ingredients: • First, long-term historical returns must be examined to determine the attributes and interrelationships that chara...

Investment Dynamics with Natural Expectations.

We study an investment model in which agents have the wrong beliefs about the dynamic properties of fundamentals. Specifically, we assume that agents underestimate the rate of mean reversion. The model exhibits the following six properties: (i) Beliefs are excessively optimistic in good times and excessively pessimistic in bad times. (ii) Asset prices are too volatile. (iii) Excess returns are ...

Information Technology Investment and Adoption: A Rational Expectations Perspective

This study examines the potential applications of the Rational Expectations Hypothesis (REH) in information technology (IT) investment and adoption decision-making. Although REH has been widely used in other areas of microeconomics and macroeconomics, we have not yet seen common use of the related theory in the Information Systems (IS) field. In this paper, we introduce REH theory together with...

The Impact of Perceived Expectations and Uncertainty on Firm Investment

This paper analyses the (differential) impact of perceived expectations and uncertainty on investment spending in small and large firms. We analyse two types of investment, viz. aggregate investment and investment in energy-saving technologies, using Dutch firm level data. The results show that expectations and uncertainty about inputand output prices and domestic demand have substantial but di...