MR. KEYNES THEORY OF INVESTMENT - DO FORWARD-LOOKING EXPECTATIONS ANDWEIGHT REALLY MATTER

Keynes argued that profit expectations, and the degree of confidence o r weight that managers place in their profit forecasts, determine inve stment. Previous attempts to test Keynes' theory have been plagued by the absence of any clear measure of entrepreneurs' expectations of fut ure profits. The Conference Board collected managers' self-reported da ta on expectation of future profits. The Conference Board data also al lowed the construction of a measure of the weight assigned by managers to their profit forecasts. With this data, it is concluded that in mo st industries, investment rises both when managers are more optimistic and when they exhibit greater confidence in their forecast. (C) 1997 Elsevier Science B.V.