Idiosyncratic and Common Shocks to Investment Decisions

Bibliographic Data

ID9718353
AuthorsMark Schankerman (Centre for Economic Policy Research, corresponding author)
Year2002
Volume112
Issue482
Pages766-785
Publication date2002-10-01
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/1468-0297.00070
OpenAlexW2148403228
LanguageEN
Citations received1
References cited11

This Paper shows how microeconomic data on investment plans can be used to study the structure of risk faced by firms. Revisions of investment plans form a martingale, and thus reveal the underlying shocks driving investment. We decompose revisions in investment plans into micro, sector and aggregate shocks, and exploit stock market data to distinguish between structural (valuerelated) shocks and measurement error in investment revisions. Using panel data for US firms, we find that microshocks are not the dominant source of risk in investment decisions, and that much of the observed microvariation is actually due to heterogeneity in firm-level responses to aggregate shocks. Firms are able to diversify most idiosyncratic investment risk, and they do not appear to be liquidity constrained

Aggregate (composite · Aggregate data · Econometrics · Economics · Exploit · Investment (military · Investment Decisions · Investment strategy · Macroeconomics · Market liquidity · Monetary economics · Production (economics · Stock (firearms · Corporate Finance and Governance · Financial Markets and Investment Strategies · Monetary Policy and Economic Impact

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