Dynamic optimal investment policy under incomplete information
The North American Journal of Economics and Finance(2019)
摘要
This paper extends the classic dynamic corporate finance theory by incorporating incomplete information, where the return on a productivity shock is unobservable but known to be either high or low. An investor could dynamically update his/her belief about the expected return by following the history of realized productivity shocks. This paper predicts that incomplete information has first-order effects on valuation, i.e., the average q and marginal q, in addition to the firm’s decisions, i.e., payout, investment and liquidity management. Specifically, with an optimistic belief about the expected return, involving a higher firm value, the investor prefers delaying payout to hold more cash for future investment. In contrast, a pessimistic belief will induce the investor to adopt a conservative/flat investment decision, which reflects a weaker liquidity management motivation.
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关键词
D83,G32
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