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The overall effect of volatility on investment


  • Shih, Pai-Ta
  • Hung, Weifeng


We introduce a new channel called random delay effect, through which volatility influences real investment. We show that random delay effect is not negligible in determining the sign of the volatility-investment relationship.

Suggested Citation

  • Shih, Pai-Ta & Hung, Weifeng, 2008. "The overall effect of volatility on investment," Economics Letters, Elsevier, vol. 99(2), pages 324-327, May.
  • Handle: RePEc:eee:ecolet:v:99:y:2008:i:2:p:324-327

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    References listed on IDEAS

    1. Tom Lee & Louis L. Wilde, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 429-436.
    2. Giaccotto, Carmelo & Santerre, Rexford E & Vernon, John A, 2005. "Drug Prices and Research and Development Investment Behavior in the Pharmaceutical Industry," Journal of Law and Economics, University of Chicago Press, vol. 48(1), pages 195-214, April.
    3. Sarkar, Sudipto, 2003. "The effect of mean reversion on investment under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 377-396, November.
    4. Pindyck, Robert S, 1988. "Irreversible Investment, Capacity Choice, and the Value of the Firm," American Economic Review, American Economic Association, vol. 78(5), pages 969-985, December.
    5. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
    6. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-233, March.
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