Abel, Andrew BBlanchard, Olivier J2023-05-222023-05-221986-03-012017-07-20https://repository.upenn.edu/handle/20.500.14332/34252Most of the empirical work on investment is based on the existence of a relation between investment and the expected present val of marginal profits.Thus, in this paper we compute such a present value series, under various assumptions about demand and technology and examine its relation to investment.We find that variations in this present value series are, surprisingly,due more to variations in the cost of capital than to variations in marginal profit. We also find that the present value series, although significantly related to investment, still leaves unexplained a large, serially correlated fraction of investment.This is the peer reviewed version of the following article: Abel, Andrew B., and Olivier J. Blanchard. "The Present Value of Profits and Cyclical Movements in Investment." Econometrica 54, no. 2 (1986): 249-73. doi:10.2307/1913150.. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving: http://olabout.wiley.com/WileyCDA/Section/id-820227.html#termsEconomicsFinanceFinance and Financial ManagementArticle