Investment and Value: A Neoclassical Benchmark
Which investment model best fits firm-level data? To answer this question we estimate alternative models using Compustat data. Surprisingly, the two best-performing specifications are based on Hayashi’s (1982) model. This model’s foremost implication, that Q is a sufficient statistic for determining a firm’s investment decision, has been often rejected because cash-flow and lagged-investment effects are present in investment regressions. However, we find that these regression are ineffectual for evaluating model performance. So, forget what investment regressions tell you. Models based on Hayashi (1982) provide a very good description of investment behavior at the firm level.
Year of publication: |
2008-05
|
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Authors: | Eberly, Janice ; Rebelo, Sergio ; Vincent, Nicolas |
Institutions: | Institut d'Économie Appliquée, HEC Montréal (École des Hautes Études Commerciales) |
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