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Investment Shocks and Asset Prices

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Author Info

  • Dimitris Papanikolaou

Abstract

I explore the implications for asset prices and macroeconomic dynamics of shocks that improve real investment opportunities and thus affect the representative household’s marginal utility. These investment shocks generate differences in risk premia due to their heterogeneous impact on firms: they benefit firms producing investment relative to firms producing consumption goods and increase the value of growth opportunities relative to the value of existing assets. Using data on asset returns, I find that a positive investment shock leads to high marginal utility states. A general equilibrium model with investment shocks matches key features of macroeconomic quantities and asset prices.

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File URL: http://www.jstor.org/stable/pdfplus/10.1086/662221
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File URL: http://www.jstor.org/stable/full/10.1086/662221
Download Restriction: Access to the online full text or PDF requires a subscription.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 119 (2011)
Issue (Month): 4 ()
Pages: 639 - 685

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Handle: RePEc:ucp:jpolec:doi:10.1086/662221

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Web page: http://www.journals.uchicago.edu/JPE/

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Cited by:
  1. Görtz, Christoph & Tsoukalas, John, 2011. "News and financial intermediation in aggregate and sectoral fluctuations," MPRA Paper 40442, University Library of Munich, Germany, revised Jul 2012.
  2. Roussanov, Nikolai, 2014. "Composition of wealth, conditioning information, and the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 111(2), pages 352-380.
  3. Nadav Ben Zeev & Hashmat U. Khan, 2012. "Investment-Specific News Shocks and U.S. Business Cycles," Carleton Economic Papers 12-05, Carleton University, Department of Economics, revised 25 Feb 2013.
  4. Andrew Y. Chen, 2013. "External Habit in a Production Economy," 2013 Papers pch1244, Job Market Papers.
  5. Christoph Görtz & John D. Tsoukalas, 2013. "Sector Specific News Shocks in Aggregate and Sectoral Fluctuations," CESifo Working Paper Series 4269, CESifo Group Munich.
  6. Leonid Kogan & Dimitris Papanikolaou, 2012. "Growth Opportunities, Technology Shocks, and Asset Prices," NBER Working Papers 17795, National Bureau of Economic Research, Inc.
  7. Christoph Görtz & John D. Tsoukalas, 2013. "News shocks and business cycles: bridging the gap from different methodologies," Working Papers 2013_25, Business School - Economics, University of Glasgow.
  8. Yang, Fan, 2013. "Investment shocks and the commodity basis spread," Journal of Financial Economics, Elsevier, vol. 110(1), pages 164-184.

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